SECURITIES REGISTERED
PURSUANT TO SECTION 12(b) OF THE ACT: None

Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the Act. Yes o No x

Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 (Exchange Act) during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes x No o

Indicate
by check mark if disclosure of delinquent filings pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. x

Indicate by check mark whether the registrant is
a large accelerated filer, an accelerated filer or a non-accelerated filer, as
defined in Rule 12b-2 of the Exchange Act.

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o

Smaller reporting company x

Indicate
by check mark whether the registrant is a shell company, as defined in Rule 12b-2
of the Exchange Act. Yes o No x

The
aggregate market value of the 23,565,315 shares of the registrants Common
Stock held by nonaffiliates on January 31, 2008 was approximately
$16,260,067. For purposes of this computation all officers, directors and 5%
beneficial owners of the registrant are deemed to be affiliates. Such
determination should not be deemed an admission that such officers, directors
and beneficial owners are, in fact, affiliates of the registrant.

At
October 31, 2008 there were 31,108,839 shares of the registrants Common
Stock, $.01 par value, issued and outstanding.

PART I

ITEM 1.BUSINESS

GENERAL

Forgent Networks, Inc. a
Delaware corporation d/b/a Asure Software (Forgent or the Company), is a provider of web-based workforce
management solutions and a licensor of intellectual property. The Company was incorporated in 1985 and has
principal executive offices located at 108 Wild Basin Road, Austin, Texas
78746. The Company telephone number is
(512) 437-2700 and the Company website is www.asuresoftware.com. The Company does not intend for information
contained on its website to be part of this Annual Report on Form 10-K (the Report). Forgent makes available free of charge, on or
through its website, its annual report on Form 10-K, its quarterly reports
on Form 10-Q, its current reports on Form 8-K, and amendments to
those reports filed or furnished pursuant to Section 13(a) or 15(d) of
the Exchange Act, as soon as reasonably practicable after the Company
electronically files such material or furnishes it to the Securities and
Exchange Commission.

The
Company has two main business segments.
First, as a software and services provider, the Company offers web-based
workforce management solutions that enable organizations to manage their office
environment as well as
their human resource and payroll processes effectively and
efficiently. Second, as a licensor of
intellectual property, Forgent primarily enters into one-time intellectual
property license agreements with companies for the Companys patented
technologies. In recent years,
Forgents success was largely dependent
on its ability to license and commercialize its patent portfolio and other
intellectual property. However, with
the conclusion of certain patent litigations in fiscal year 2007, the Company
has substantially exhausted its existing patent licensing revenue sources.

In
September 2007, the Company announced the re-branding of its corporate
name to Asure Software. In
October 2007, Forgent acquired all of the outstanding capital stock of
iSarla Inc., a Delaware corporation and application service provider that
offers on-demand software solutions under the trade name iEmployee. These two events were designed to refocus the
Companys efforts toward the software and services business and away from the
intellectual property licensing business.
As a result of the iEmployee acquisition, the Company currently offers
two main product lines in its software and services business: NetSimplicity and
iEmployee. Forgents NetSimplicity
product line, which is sold through a web and telesales business model, includes its flagship product, Meeting Room Manager (MRM),
which automates the entire facility scheduling process including reserving
rooms, requesting equipment, ordering food, sending invitations and reporting
on the meeting environment. The Company
also develops and markets NetSimplicitys Visual Asset Manager (VAM) product,
a web based management tool that enables companies to efficiently inventory,
track and manage their fixed, mobile and IT assets across the entire
organization. The iEmployee product line
is sold through direct sales and resellers.
iEmployees web-based
solutions, which include Time & Attendance, Timesheets, Human Resource
Benefits, Expenses and others, help simplify the HR process and improve
employee productivity by managing and communicating human resources, employee
benefits and payroll information.

With
the acquisition of iEmployee and the continued growth of its NetSimplicity
product line, management believes the Company will be able to grow its software
and services segment, which is the primary generator of
revenues and cash flows on a going forward basis. Additional business segment information is
contained elsewhere in this Report, including under Item 7 of Part II (Managements Discussion and Analysis of Financial Condition and Results
of Operations) and in the Segment Information footnote in the
accompanying financial statements. Forgent
also continues to explore other strategic growth opportunities as well as
options for increasing return on shareholder value. However, uncertainties and challenges remain
and there can be no assurances that Forgents current strategy will be
successful.

On February 4, 2008,
Forgent received a Nasdaq deficiency letter indicating that, for 30 consecutive business
days, the bid
price per share of the Companys
common stock closed below the minimum $1.00 per share requirement. Therefore, the Companys common stock was
subject to potential delisting from the Nasdaq Global Market Exchange pursuant to Nasdaq
Marketplace Rule 4450(a)(5).
The Company was provided 180 calendar days, or until August 4, 2008,to regain compliance by maintaining a
share bid price in excess of $1.00 for ten consecutive business days. Forgent
worked to regain compliance through improving its operating results, but it was
unable to

regain
compliance with the minimum bid requirement.
Consequently, Forgent applied for a transfer listing on the Nasdaq Capital
Market. Nasdaq approved the application
and transferred the Companys securities to the Nasdaq Capital Market,
effective September 19, 2008. As a
result of this transfer, Forgent was provided an additional 180 calendar days,
beginning from the original August 4, 2008 deadline, or until February 2,
2009, to regain compliance with the minimum $1.00 share bid price requirement.

Due to current unprecedented
market conditions, on October 16, 2008, Nasdaq suspended the enforcement
of its rules requiring a minimum $1.00 share bid price for all
Nasdaq-listed companies. The rules will
be reinstated on January 19, 2009.
Consequently, on October 22, 2008, Forgent received a Nasdaq letter
extending the revised compliance deadline from February 2, 2009 to May 5,
2009. If the Company cannot achieve
compliance with the minimum share price requirement by May 5, 2009, Nasdaq
will provide written notification that the Companys securities will be
de-listed from the Capital Market Exchange.

SOFTWARE AND SERVICES BUSINESS

Products and Services

As Asure Software, Forgent offers
web-based workforce management solutions that enable organizations to manage
their office environment as
well as their human resource and payroll processes effectively
and efficiently. The workforce
management solutions include scheduling software, asset management software,
human resource and time and attendance software, complementary hardware devices
to enhance its software products, software maintenance and support,
installation and training and other professional services.

The
Companys NetSimplicity line of software products enable corporations,
educational institutions, law firms and healthcare facilities, in the United
States and worldwide, to more effectively manage shared office space,
equipment, assets and resources. Now in
its seventh major release, Meeting Room Manager has evolved into a
scheduling solution that enables organizations to better manage their meeting
environment by managing everything related to the meeting environment,
including rooms, catering, A/V, equipment, setup and other resources and
services. MRM has a number of interface
options including a web-based Microsoft Outlook® or a LCD Panel
interface. MRM is marketed both on an in-house installed, perpetual license
basis, and on a hosted subscription, software-as-a-service (SaaS) basis. The Company also offers
complementary LCD panels as optional add-ons as a means to access its
scheduling software and book rooms ad hoc via panel interfaces.

In
November 2007, the Company introduced its new NetSimplicity Mobile
Workforce Manager software, an office hoteling scheduling solution that enables
flex-work and mobile employees to secure workspace on demand when they come
into the office or travel between company locations. Mobile Workforce
Manager presents users a web based office floor plan, allowing users to book
available cubes, offices and other shared workspace. Mobile Workforce
Manager can be used on a stand-alone basis, or in tandem with MRM, to enable
flex-work and mobile workers to also book meeting space from the Mobile
Workforce Manager interface.

Visual
Asset Manager is a web-based asset management solution that helps customers
efficiently administer its assets by automatically locating and tracking IT assets,
such as computers and software, and managing these assets as well as other
office equipment, furniture and fixed assets across the organization. VAM
provides a visual, floor plan oriented, web-based interface that makes the
software easy to deploy in any environment. VAM also allows an
organization to map and display the locations of each asset on its floor plans
and to track maintenance coverage, equipment leases, warranties, repairs and
depreciation for each asset in its inventory, in a simple and cost-effective
manner. Forgent also
offers optional barcode scanners to complement its asset management software.

The
Companys iEmployee suite of human resources and time and attendance software
enables small to medium businesses to transition to an online, self-service
human resources process, thereby improving accuracy and reducing administrative
costs. All iEmployee products are offered on a hosted subscription, SaaS
basis, which saves customers the need to install software or maintain hardware
and provides customers a quick and easy way to implement a fully-automated
human resource information system solution. Additionally, iEmployee
products are integrated with over 50 leading payroll and benefits providers,
allowing customers to advance to online, self-service HR without significant
switching costs. The Companys two
primary iEmployee products are Time & Attendance and HR &
Benefits.

iEmployees
Time & Attendance solution enables organizations to manage hourly time
tracking, project time tracking and paid-time-off in one unified system, thus
eliminating paper timekeeping hassles. It provides automated workflows to
increase manager and employee productivity and automatically enforces company
policies and business rules, eliminating costly time-reporting and calculation
errors. In June 2007, the Company introduced the iEmployee EasyTouch
Time Clock, a small touch-screen enabled Internet appliance that allows
employers to capture employee time punches through a full range of biometric
and card recognition options and provides employees with real-time access to
schedules, time-off balances and attendance history. The combination of
Time & Attendance and EasyTouch Time Clock offers customers a
comprehensive web and physical time clock time and attendance system that is
affordable and easy to deploy.

By
providing HR managers an efficient means to manage the hiring process,
performance reviews, bonuses, compensation, open enrollment, employee
self-service, and benefits administration, iEmployees HR & Benefits
solution significantly reduces the HR administrative burden, eliminates paper
and paper processing costs and simplifies compliance with regulatory statutes.
Built on a foundation of effective self-service features that are easy to use,
HR & Benefits can transform the human resource process from a focus
heavily weighted on paperwork to a direct focus on the employees.

Support and professional services are another
key element of Forgents software and services business. As an extension of its
perpetual software product offerings, NetSimplicity offers its customers
maintenance and support contracts that provide ready access to qualified
support staff, software patches and upgrades to the Companys software
products, all without any additional cost to the customer. At the
customers request, the Company
provides installation of and training on its products, add-on software
customization, and other
professional services.

Product Development

The technology industry is characterized by continuing improvements in
technology, resulting in the frequent introduction of new products, short
product life cycles, changes in customer needs and continual improvement in
product performance characteristics. To
be successful, Forgent must be cost-effective and timely in enhancing its
current software applications, developing new innovative software solutions
that address the increasingly sophisticated and varied needs of an evolving
range of customers, and anticipating technological advances and evolving
industry standards and practices.

NetSimplicitys
development team, based in Vancouver, British Columbia, Canada, consists of
skilled software developers, testers and technical writers who work closely
with the Companys sales and marketing teams to build products based on market
requirements and customer feedback. The
iEmployee development team, based in Warwick, Rhode Island and Mumbai, India,
is staffed with software architects, developers, quality assurance engineers
and support specialists who work closely with the Companys customers to
enhance the new releases of the iEmployee suite of products.

The
Companys research and development strategy is to continue to enhance the
functionality of its software products through new releases and new feature
developments. Forgent will also continue
to evaluate opportunities for developing new software so that organizations may
further streamline and automate the tasks associated with administering their
businesses. The Company seeks to
simultaneously allow organizations to improve their productivity while reducing
their costs associated with those business tasks.

Despite the Companys best efforts, there can be no
assurance that Forgent will complete its existing and future development
efforts or that its new and enhanced software products will adequately meet the
requirements of the marketplace and achieve market acceptance. Additionally, Forgent may experience
difficulties that could delay or prevent the successful development or
introduction of new or enhanced software products. In the case of acquiring new or complementary
software products or technologies, the Company may not be able to integrate the
acquisitions into its current product lines.
Furthermore, despite extensive testing, errors may be found in the
Companys new software products or releases after shipment, resulting in a
diversion of development resources, increased service costs, loss of revenue
and/or delay in market acceptance.

Sales and Distribution

Forgents software products and services are
sold primarily through a direct web and telesales model, which enables the
Company to sell its software solutions in an efficient, cost-effective manner.
The prospective customer visits one of the Companys two product line websites,
either NetSimplicity or iEmployee, gathers the needed product information, and
can optionally register for webcasts, product demonstrations, white papers and
the like. At that point, the prospective
customer provides contact information via the website and a sales
representative follows up to provide further information and conclude the
sale. In addition to this direct, inside
sales model, the Company supplements these efforts with its partner programs
described below. By working with these
partners, the Company expands the reach of its direct sales force and gains
access to key opportunities in major market segments worldwide. The Company has two distinct levels of
partners in its Partner Program: Reseller Partners and Referral Partners.

Reseller Partners are companies that represent
the Company in geographies outside the United States and in the Federal
government and companies with complimentary offerings to either the
NetSimplicity product line or the iEmployee product line. Reseller Partners commit to a minimum level
of business per year with the Company and receive a channel discount for that
commitment. The Companys Reseller
Partners outside the United States include: BusinessSolve, Ltd. in the United
Kingdom, Novera in Australia, and Isyd in Germany, all of whom represent the
NetSimplicity product line. The Company
also has several Reseller Partners that represent NetSimplicity software in the
Federal government space. Resellers of
iEmployee include Ceridian Corporation in the United States, a leading provider
of human resource outsourcing solutions.

Referral Partners provide the Company with the
name and particular information about a customer and its needs as a sales
lead. If the Company accepts the sales
lead, registers it for a particular Referral Partner and subsequently makes a
sale as a direct result of such a lead, the Company will pay the Referral
Partner a sales lead referral fee.
Currently, the Company has a number of Referral Partners including
PolyVision Corp./Steelcase and e-Innovative Solutions for the NetSimplicity
product line and Oasis Advantage for iEmployees Time & Attendance
product.

The Company also has a digital signage solutions partner program,
which enables it to resell digital signage hardware to complement MRM.
Partners in this program include four vendors: Advantech, Tablet Kiosk,
the CRE Group and JANUS Digital Displays.
NetSimplicity has experienced successful customer deployments with each
vendors hardware.

Competition

Forgents
NetSimplicity line of scheduling and asset management software products has a
competitive advantage in the marketplace by being able to automate business
processes that are otherwise typically performed manually or with the
assistance of general-purpose office software tools such as Microsoft Outlook®,
Exchange® or Excel®. MRM competes with other scheduling software
applications offered by companies such as PeopleCube, Dean Evans and
Associates, and Emergingsoft. The principal competitive advantages of MRM
with respect to these other products include MRMs broad product capabilities,
more customizable user interface, and price. VAM currently competes with products offered
by companies such as NuMara Software, Archibus, Inc., and Sage Software, Inc.
but has advantages over those products in the areas of ease of use, product
features and price.

Forgents iEmployee line of human resource
and time and attendance software has a competitive advantage in the marketplace
by being able to serve organizations looking for specific point-solutions as
well as organizations looking for an integrated suite of solutions. By being
able to compete tactically with point-solutions and strategically with an
integrated suite of solutions, iEmployee can serve the needs of a broad
spectrum of companies. While iEmployee has the advantage of flexibility,
ease-of-use, affordability and speed of delivery, the Company faces certain
challenges with various types of competitors:

·Vendors with face-to-face
sales contact. In this highly relationship-based sales process,
vendors with a field-based sales team who meets and consults with prospects
have an advantage. iEmployee does not have a field-based approach to sales but
focuses instead on high-touch marketing campaigns and leveraging relationships with
channel partners to build relationships with prospects.

·National payroll
processors with loss-leader products. Large brand and market share
vendors (like ADP, Inc.) can offer equivalent point solutions at little or
no cost to prospects when in a competitive engagement because these loss leader
products become inconsequential next to their core business offerings.

·Single application
vendors. Vendors that offer similar point-solutions like Time &
Attendance, Employee/Manager Self-Service, Paystubs, etc. can be perceived as
better meeting an immediate and specific need.

Since
the market for the Companys products and services is subject to rapid
technological change and since there are relatively low barriers to entry in
the workforce management software market, the Company may encounter new
entrants or competition from vendors in some or all aspects of its two product
lines. Competition from these potential market entrants may take many forms. Some
of the Companys competitors, both current and future, may have greater
financial, technical and marketing resources than the Company and, therefore,
may be able to respond quicker to new or emerging technologies and changes in
customer requirements. As a result, they
may compete more effectively on price and other terms. Additionally, those competitors may devote
greater resources in developing products or in promoting and selling their
products to achieve greater market acceptance.
Forgent is actively taking measures to effectively address its
competitive challenges. However, there can be no assurance that the
Company will be able to achieve or maintain a competitive advantage with
respect to any of the competitive factors.

Marketing

The
Companys software and services business has a large roster of more than 3,500
domestic and international customers. The consistent growth of the customer
base relies on the development and implementation of a comprehensive integrated
marketing plan. Although the Companys
customers include many Fortune 500 companies, the marketing plan is primarily
aimed at reaching small to medium-sized businesses and divisions of enterprise
organizations throughout the United States, Europe and Asia/Pacific. The integrated elements of Forgents
marketing plan include a mix of demand generation, public relations and other
corporate communications activities to ensure a consistent and accurate flow of
information to and from prospects, customers and other key stakeholders. In terms of ongoing demand generation
activities, the Company focuses its efforts primarily on Internet pay-per-click
advertising, search engine optimization and email marketing. Additional marketing mix elements include
e-mail marketing, trade shows and print advertising.

Trademarks

Due to its
name change to the use of the d/b/a Asure Software, the Company has applied to
register the Asure Software trademark with the U.S. Patent and Trademark
Office (the USPTO). The Company is
also pursuing trademark registrations for the Asure Software trademark in
other jurisdictions. As a result of the
iEmployee acquisition in October 2007, the Company holds the iEmployee
trademark.

INTELLECTUAL PROPERTY LICENSING BUSINESS

Patent Licensing Program

The Company has historically expended significant efforts and incurred
significant expenses identifying potential licensees and negotiating license
agreements. During the negotiations, the
Company typically sought consideration for sales made prior to the effective
date of the license agreement as well as a license fee or royalties for future
sales. Most of Forgents existing
license agreements were fully paid upon signing and did not require further
payments. Additionally, Forgent
recognized intellectual property licensing revenues and the related cost of
sales in the period the license agreements were signed. The cost of sales from the intellectual
property licensing business related to contingent legal fees incurred on
successfully achieving signed agreements as well as legal fees incurred based
upon legal counsels time.

Forgent garnered its licensing revenues
primarily from two identified patents: U.S.
Patent No. 4,698,672 (the  672 patent), which relates to
technology for compressing, storing and decoding full-color or gray images, and
U.S. Patent No 6,285,746 (the  746 patent),
which relates to technology for storing and retrieving multimedia data in a
manner that allows playback during recording.
The 672 patent expired in October 2006 and the 746
patent, which the Company developed and patented, expires in May 2011.

During
fiscal year 2008, the Company did not actively pursue additional license
agreements from the 672 patent, the 746 patent or any other patent, but
Forgent continues to maintain a portfolio of patents and patent
applications. However, there can be no
assurance that Forgents pending patent applications will be issued as

patents or that the
issued patents can be licensed and/or litigated successfully. Furthermore, management believes any additional revenues to
be generated from the Companys remaining patent portfolio may be less than
those generated historically.

Litigation

In June 2006, the
United States District Court for the Northern District of California issued its
claims construction ruling as to the Companys litigations related to the 672
patent (the  672 Litigation). Such
ruling favored the defendants claims construction in the 672 Litigation, with
the Court ruling the claims to be limited to video. As a result of this
unfavorable claims construction ruling, Forgent pursued settlement negotiations
with the remaining defendants in the 672 Litigation and signed a Patent
License and Settlement Agreement with those defendants in October 2006.

In April 2007 and June 2007,
Forgent entered into settlement and license agreements with ten of the
defendants in the Companys litigation related to the 746 patent (the  746
Litigation). In May 2007, a jury for the United
States District Court for the Eastern District of Texas, Tyler Division, found
the four asserted claims of the 746 patent to be invalid. This finding was in favor of the two remaining defendants in the 746 Litigation. On August 9, 2007, the Court ordered
Forgent to remit payment to the defendant for reimbursement of certain litigation
costs. This payment was made on August 23,
2007.

As a result of the above
license and settlement agreements signed during fiscal year 2007, the court
rulings related to the 672 Litigation and the 746 Litigation, and managements
decision not to pursue those litigations further, Forgent considers the 672
Litigation and the 746 Litigation to be concluded.

EMPLOYEES

As
of October 15, 2008, the Company had a total of 103 employees, 35 of whom
reside in India, in the following departments:

NUMBER OF

FUNCTION

EMPLOYEES

Research and development

27

Sales and marketing

32

Customer service and technical support

29

Finance, human resources and administration

15

Total

103

The size and composition
of Forgents workforce is
continually evaluated and adjusted. The Company also occasionally hires
contractors to support its sales and marketing, information technology and
administrative functions. Forgent
believes it retains the appropriate management team and employees to fully
implement its business strategy. None of
the Companys employees are represented by a collective bargaining
agreement. Forgent has not experienced
any work stoppages and considers its relations with its employees to be
good.

The future performance of the Company depends
largely on its ability to continually and effectively attract, train, retain,
motivate and manage highly qualified and experienced technical, sales,
marketing and managerial personnel.
Forgents future development and growth depend on the efforts of key
management personnel and technical employees. Competition for such personnel is
intense. Although the Company does not generally enter into formal employment
agreements with key management personnel or technical employees, Forgent uses
incentives, including competitive compensation and stock option plans to
attract and retain well-qualified employees. However, there can be no assurance
that the Company will continue to attract and retain personnel with the
requisite capabilities and experience. The loss of one or more of Forgents key
management or technical personnel could have a material and adverse effect on
its business and operating results.

EXECUTIVE OFFICERS

Forgents executive officers are as follows:

Richard N. Snyder, age 63, joined the Companys
Board of Directors in December 1997 and became Chairman of the Board in March 2000.
In June 2001, Mr. Snyder was named Forgents President and Chief
Executive Officer. Mr. Snyder has over 32 years of senior management
experience, including Founder and Chief Executive Officer at Corum Cove
Consulting, LLC, Senior Vice President of Worldwide Sales, Marketing, Service
and Support at Compaq Computer Corporation, Senior Vice President and General
Manager at Dell Americas and Group General Manager of the Deskjet Products
Group at Hewlett-Packard. Mr. Snyder received a Masters in Business
Administration degree from Saint Marys College and a Bachelor of Science
degree from Southern Illinois University.

Jay
C. Peterson, age 51, joined the Company in September 1995 as Manager of
Corporate Planning and has served as Forgents Chief Financial Officer and Vice
President of Finance since May 2000. Prior to joining the Company, Mr. Peterson
performed as Assistant Controller with the Dell Direct Channel that generated
$1 billion in annual sales at Dell Computer Corporation and held various
financial positions during 11 years with IBM Corporation. Mr. Peterson
holds a Masters in Business Administration degree and a Bachelor of Arts in
Economics degree from the University of Wisconsin.

Nancy
L. Harris, age 45, joined the Company in October 2001 as Vice-President of
Marketing. She currently serves as
Forgents Chief Operating Officer and Senior Vice-President of Operations and
is responsible for the daily operations of the Companys software segment. Ms. Harris has 23 years experience in
the software industry, serving in both marketing and development
capacities. Prior to joining the
Company, Ms. Harris was the Director of Marketing and Product Management
at Clear Commerce, an Internet transaction-processing software company (2000 to
2001). Prior to that, Ms. Harris spent eight years with BMC Software in
various positions including Director of Field Marketing, Director of Product
Marketing and Development Manager. Ms. Harris also spent several years
with Andersen Consulting in various capacities. Ms. Harris holds a Masters
of Science in Marketing degree and a Bachelor of Science in Journalism degree
from Northwestern University.

ITEM 1A.
RISK FACTORS

The Company is a smaller reporting company as
defined by Rule 12b-2 of the Exchange Act and is not required to provide
the information required under this item.

ITEM 2.PROPERTIES

Forgent leases approximately 137,000 square
feet in Austin, Texas for use as its headquarters, including its sales and
marketing operations. The lease expires
in March 2013. Due to the
downsizing of the Company on account of past divestitures and restructurings,
Forgent has existing unoccupied leased space inventory, which it has actively
subleased. During prior fiscal years, management calculated the economic value
of the lost sublease rental income and recorded impairment charges to the
Consolidated Statement of Operations. As
of July 31, 2008, Forgent had $0.5 million recorded as a liability on the
Consolidated Balance Sheet related to these impairment charges at its Austin
property. Currently, the Company
occupies approximately 19,000 square feet, subleases approximately 91,000
square feet and anticipates continuing to sublease the remaining under-utilized
space.

Forgent also leases approximately 4,000 square
feet of office space in Vancouver, British Columbia, Canada. The Canadian facility provides office space
for sales and development efforts. As a result of the iEmployee acquisition in October 2007,
the Company currently leases approximately 5,000 square feet in Seekonk,
Massachusetts for sales and development efforts and approximately 3,000 square
feet in Mumbai, India for sales, marketing, development and support
efforts. In October 2008, Forgent
signed a lease for approximately 5,000 square feet of office space in Warwick,
Rhode Island and is in the process of relocating its operations at the Seekonk
office to the Warwick office.

Management believes that the leased properties
described above are adequate to meet Forgents current operational requirements
and can accommodate further physical expansion of office space as needed.

Forgent
is the defendant or plaintiff in various actions that arose in the normal
course of business. With the exception
of the proceedings described below, none of the pending legal proceedings to
which the Company is a party are material to the Company.

Litigation
with Jenkens & Gilchrist, P.C.

On July 16,
2007, Jenkens & Gilchrist, P.C. (Jenkens), Forgents former legal
counsel, filed a complaint against Forgent and Compressions Labs, Inc., in
the District Court of Dallas County, Texas.
In its complaint, Jenkens alleges a breach of contract and is seeking a
declaratory judgment. Forgent disputes
Jenkens claims and is seeking relief through the court system.

After
Forgent terminated Jenkens, the Company entered into a Resolution Agreement
with Jenkens in December 2004.
Under the Resolution Agreement, the Company believes Jenkens is entitled
to $1.4 million for contingency fees and expenses related to the settlements
from the litigation regarding the Companys DVR patents. Jenkens interprets the Resolution Agreement
on broader terms and believes it is entitled to $3.4 million, including
attorneys fees and interest.

On March 3,
2008, Forgent and Jenkens appeared before the Court regarding a hearing on the
motion for summary judgment filed by Jenkens.
On May 20, 2008, the Court granted Jenkens motion and ordered
Forgent to pay Jenkens $2.8 million for recoveries related to the 746 patent
and other amounts including attorneys fees and interest. Forgent appealed this Court order, and on September 3,
2008, the Court granted Forgents Motion to Reconsider Order. The trial date
for this litigation is currently scheduled for April 27, 2009.

Management
currently cannot predict how long it ultimately will take to resolve the
Jenkens lawsuit. Until the Jenkens
litigation is finalized, the related contingency fees and expenses may be
adjusted in a future period and could have a material impact to the Companys
consolidated financial statements.

Litigation
with Wild Basin

On
September 6, 2007, Forgent filed a petition against Wild Basin One &
Two, Ltd. (Wild Basin) in the District Court of Travis County, Texas. The petition claimed Wild Basin was in breach
of contract relating to Forgents lease agreement by unreasonably withholding
and delaying its consent to Forgents lease assignment to a third party. On October 19, 2007, Forgent amended its
petition to include claims of fraud and breach of fiduciary duty against Wild
Basin.

On
June 2, 2008, Wild Basin filed a counterclaim seeking a declaratory
judgment that it had complied with its obligations under the lease and was
seeking the recovery of attorneys fees.
On June 5, 2008, Forgent amended its petition to request the Court
make declaratory judgments on several issues in the case and to include as a
breach of contract claim its claim for withholding amounts that should have
been distributed by Wild Basin in the past pursuant to the lease. Forgent sought to recover all damages as a
result of the delay in closing its pending assignment and amounts not
distributed in the past, among other damages.

The trial for this litigation commenced on September 22,
2008. Prior to the conclusion of the
trial, Forgent and Wild Basin reached a settlement agreement, effective September 25,
2008. This settlement agreement
requires, among other terms, that Wild Basin consents to Forgents lease
assignment. In return, Forgent will pay
Wild Basin $75 thousand. Both parties
agreed to mutually release claims against each other. As required by the settlement agreement,
Forgent expects to finalize the lease assignment by December 31,
2008. However, there is no assurance
that Forgent will finalize the lease assignment, or if finalized, that it will
occur by the December 31, 2008 deadline.

Re-examination of United States Patent No. 6,285,746

On October 2, 2006, the United States Patent and Trademark Office
(the USPTO) ordered an inter partes re-examination of the 746
patent and issued its first office action related to this re-examination on October 30,
2006. This first action, which is not
the final conclusion of the re-examination, rejected the five claims in the

746 patent. Forgent responded to the USPTO. On September 4, 2008, the Company
received a Notification of Defective Paper in Re-exam from the USPTO. Since management determined little benefit
may be achieved in the future from upholding its claims, Forgent does not plan
to pursue this matter further.

Re-examination of United States Patent No. 4,698,672

On
January 31, 2006, the USPTO granted a petition to re-examine the 672
patent and subsequently issued its first office action on May 25,
2006. Forgent responded to this first
office action, which confirmed 27 of the 46 claims in the 672 patent. On March 26, 2007, the USPTO issued its
final office action, which affirmed its first office action. Forgent responded to the USPTO on May 11,
2007. On January 11, 2008, the Company received the USPTOs notice of
intent to issue an Ex-Parte Reexamination Certificate. On April 15, 2008 Forgent received the
USPTOs Ex-Parte Reexamination Certificate, which affirmed its previous office
actions. The Company currently has no
plans to pursue this matter further.

ITEM 4.SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS

None.

PART II

MARKET INFORMATION

The common
stock of the Company was traded in the NASDAQ-National Market System under the
symbol FORG. Forgent changed its name
to Asure Software, effective September 13, 2007, and is currently trading
in the NASDAQ Capital Market System under the symbol ASUR. The following
table sets forth the high and low sales prices for the Companys common stock
for each full fiscal quarter of 2008 and 2007:

FISCAL YEAR

FISCAL YEAR

2008

2007

HIGH

LOW

HIGH

LOW

1st Quarter

$

1.49

$

0.65

$

0.70

$

0.34

2nd Quarter

$

1.39

$

0.65

$

2.00

$

0.42

3rd Quarter

$

0.90

$

0.29

$

1.67

$

0.82

4th Quarter

$

0.57

$

0.28

$

1.38

$

0.80

DIVIDENDS

The
Company has not paid cash dividends on its common stock during fiscal years
2008 and 2007, and presently intends to continue a policy of retaining earnings
for reinvestment in its business, rather than paying cash dividends.

HOLDERS

As of October 23, 2008, there were
approximately 10,054stockholders
of record of the Companys common stock.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

See Equity Compensation Plan Information
under Item 12 of Part III of this Report (Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters).

Certain
statements in this Report represent forward-looking statements. These
statements involve known and unknown risks, uncertainties and other factors
that may cause actual results of operations, levels of activity, economic
performance, financial condition or achievements to be materially different
from future results of operations, levels of activity, economic performance,
financial condition or achievements as expressed or implied by such
forward-looking statements.

Forgent
has attempted to identify these forward-looking statements with the words believes,
estimates, plans, expects, anticipates, may, could and other similar
expressions. Although these forward-looking statements reflect managements
current plans and expectations, which are believed to be reasonable as of the
filing date of this Report, they inherently are subject to certain risks and
uncertainties. Additionally, Forgent is
under no obligation to update any of the forward-looking statements after the
date of this Form 10-K to conform such statements to actual results.

RESULTS OF OPERATIONS

The following table sets forth for the fiscal
periods indicated the percentage of total revenues represented by certain items
in Forgents Consolidated Statements of Operations:

FOR THE YEAR ENDED
JULY 31,

2008

2007

Software & services revenues

100.0

%

10.5

%

Intellectual property licensing revenues



89.5

Gross margin

78.0

52.4

Selling, general and administrative

110.4

29.7

Research and development

21.1

1.5

Impairment of assets

72.6



Amortization of intangible assets

4.8

0.0

Total operating expenses

208.9

31.2

Other income, net

6.3

9.4

Net (loss) income

(124.8

)%

30.3

%

FOR THE YEARS ENDED JULY 31,
2008 AND 2007

Overview

During the year ended July 31, 2008,
Forgent successfully augmented its software and services business by acquiring
the iEmployee operations and growing its NetSimplicitys operations. In
addition to increasing its software and services revenues by 139.9% over fiscal
year 2007, fiscal year 2008 was focused on managing and reducing unnecessary
costs. While integrating the iEmployee operations, management explored and implemented strategies to
maximize efficiencies throughout the Company.
Forgent eliminated personnel, facilities, infrastructure and processes
that duplicated or lengthened the Companys existing tasks and
responsibilities, thus reducing excessive costs.

Throughout fiscal year 2008, Forgent expended
significant time and effort to defend its rights to assign its Wild Basin lease
to a third party. The culmination of
these efforts resulted in a settlement agreement reached in September 2008
and requires Wild Basin to consent to Forgents lease assignment, among other
terms. Management anticipates
significant expense and cash savings in fiscal year 2009 once the lease
assignment is finalized. However, there
is no assurance that Forgent will finalize the lease assignment, or if
finalized, that it will occur by the December 31, 2008 deadline.

Forgent will continue to implement its
corporate strategy for growing its software and services business. Management plans to modestly invest in areas
that directly generate revenue and positive cash flows for the Company to grow
organically, as well as consider exploring potential opportunities to acquire a
growing and profitable public or privately held technological business or
product line that complements Forgents existing product lines. However, uncertainties and challenges remain,
and there can be no assurance that the Company can successfully grow its
revenues or achieve profitability during fiscal year 2009.

Revenues

Consolidated revenues were $10.2 million in
fiscal year 2008 and $40.4 million in fiscal year 2007. The decrease was $30.2
million, or 74.8%. Consolidated revenues represent the combined
revenues of the Company and its subsidiaries, including sales of the Companys scheduling software, asset management software,
human resource and time and attendance software, complementary hardware devices to
enhance its software products, software maintenance and support services, installation
and training services and other professional services, as well as royalties and
settlements received from licensing the Companys intellectual property.

Software and Services Business

Software and services revenues were $10.2
million in fiscal year 2008 and $4.2 million in fiscal year 2007. The increase was $5.9 million, or
139.9%. Software and services revenues
represented 100.0% and 10.5% of total revenues for the years ended July 31, 2008 and 2007, respectively. Revenues
from this line of business include sales of Forgents NetSimplicity scheduling
and asset management software, including Meeting Room Manager (MRM)
and Visual Asset Manager (VAM), and sales of the Companys iEmployee human
resource and time and attendance software, including Time &
Attendance, HR & Benefits and Pay Stubs. Also included in this segments revenues are
software maintenance and support services, installation
and training, complementary hardware devices and other professional services.

During the year ended July 31, 2008, increases in
software subscription revenues, software license revenues and maintenance
revenues accounted for approximately 87.6% of the $5.9 million increase in
revenues. In October 2007, the
Company acquired the iEmployee human resource and time and attendance
software. This software, as well as the
Companys MRM On Demand software, is delivered to customers under the SaaS
model, which is software as a service on a subscription basis. The SaaS model allows customers to use
Forgents software without installing or maintaining it on their own
servers. The acquisition of iEmployee
and the continued growth of MRM On Demand led to a $4.0 million increase in
software subscription revenues for the year ended July 31, 2008.

Software license revenues increased by $0.7
million for the year ended July 31, 2008.
During fiscal year 2008, Forgent further enhanced the MRM
Outlook® Scheduling functionality by introducing new flexible and customizable
fields. These enhanced features continue
to attract enterprise companies and Forgent continues to generate increased
sales to this market segment, including Fortune 500 companies. Although the number of software license sales
was relatively consistent in fiscal years 2008 and 2007, the sales to corporate
customers drove software sales with higher average sales prices during the year
ended July 31, 2008, as compared to the average sales prices during the
year ended July 31, 2007.
Additionally, Forgent focused sales to school districts and
municipalities, which significantly increased license revenues from
NetSimplicitys VAM asset management software.

During
fiscal year 2008, Forgent continued to proactively contact and notify its
existing customers of upcoming expirations on their maintenance and support
contracts. The increase in software
sales, as well as the continued pursuit of maintenance renewals, led to additional
sales of maintenance and support contracts, which increased maintenance
revenues by $0.5 million for the year ended July 31, 2008.

Forgent currently has distribution partners in the
United Kingdom, Australia, and Germany.
These partners and the internal sales team generated revenues from
international customers, which represent approximately 11.5% and 24.7% of the
software and services segments revenues during fiscal years 2008 and 2007,
respectively. The Company continues to
foster relationships with other foreign distribution partners in order to
increase its international presence and sales.
Forgent will continue to target North American and international
companies in the corporate, education, healthcare, government, legal and
non-profit industries. Forgent will continue to target small

and medium businesses and divisions of
enterprises and utilize marketing programs in certain vertical markets as
appropriate.

As of July 31,
2008, Forgent has fully integrated the iEmployee operations. The Company will continue to develop its
NetSimplicity and iEmployee sales force to increase sales performance and will
continue to release new software updates and enhancements for all of its
software products. Additionally, the
Company continues to explore other opportunities to acquire additional
profitable businesses, products or technologies to complement its current
software and services operations. As the
Company continues to make progress on its corporate strategy, management
believes Forgent will be able to promote growth and sustain future operations.

Intellectual Property Licensing Business

Intellectual property licensing revenues were
$0.0 million in fiscal year 2008 and $36.2 million in fiscal year 2007.
Intellectual property licensing revenues represented 0.0% and 89.5% of total
revenues for the years ended July 31, 2008 and 2007, respectively.

Forgents
licensing revenues relate primarily to
one-time intellectual property license agreements with multiple companies in
Asia, Europe and the United States for Forgents technologies embodied in U.S.
Patent No. 4,698,672 (the  672 patent) and its foreign counterparts as
well as in U.S. Patent No 6,285,746 (the  746 patent). These
one-time license agreements generated approximately 99.6% of the intellectual
property licensing segments licensing revenues for the year ended July 31,
2007.
Additionally, the 672 patent was included in a group of Moving Picture
Experts Group (MPEG) patents that garners royalties. Forgents licensing revenues include
royalties received from the MPEG-2 consortium.
Since the 672 patent expired in October 2006 in the United States,
Forgent did not receive any royalties from the consortium during fiscal
year 2008.

During fiscal year 2007,
Forgents intellectual property licensing business was in legal proceedings
with multiple companies in the United States District Court for the Eastern
District of Texas, Tyler Division (the  746 Litigation), regarding the
infringement of its 746 patent and in legal proceedings with multiple other
companies in the United States District Court for the Northern District of
California (the  672 Litigation), regarding the infringement of its 672
patent.

In April and June 2007,
Forgent entered into settlement and license agreements with ten of the
defendants, who were dismissed from the 746 Litigation with prejudice. Under these agreements, Forgent granted the
defendants a patent license and the defendants paid the Company a total of
$28.0 million. Additionally, all parties agreed to release all claims
against each other. The $28.0 million
was recorded as intellectual property licensing revenue on the Consolidated
Statement of Operations for the year ended July 31, 2007. In May 2007, a jury found the four asserted claims of the 746
patent to be invalid. This finding was in favor of the two remaining defendants in
the 746 Litigation. On August 9,
2007, the Court ordered Forgent to remit $90 thousand to the defendants for
reimbursement of certain litigation costs.
This payment was made on August 23, 2007. As a result, Forgent considers the 746
Litigation to be concluded. The Company
did not actively pursue additional 746 license agreements during fiscal year
2008 and does not anticipate any additional licensing revenues from its 746
patent.

In October 2006,
Forgent signed a Patent License and Settlement Agreement with the remaining
defendants in the 672 Litigation. Under this agreement, Forgent granted the
defendants a patent license and the defendants paid Forgent $8.0 million. Additionally, all parties agreed to release
all claims against each other. The
$8.0 million was recorded as intellectual property licensing revenue on the
Consolidated Statement of Operations for the year ended July 31,
2007. As a result, Forgent considers the 672 Litigation
to be concluded. The 672 patent expired
in October 2006 in the United States.
The Company did not actively pursue additional 672 license agreements
during fiscal year 2008 and does
not anticipate any additional licensing revenues from its 672 patent.

Because the 746 Litigation and the 672
Litigation were concluded, because the intellectual property licensing
revenues represent 89.5% of total revenues for the year ended July 31,
2007, and because Forgent did not pursue
any additional licensing revenues from its 746 patent or its 672 patent, the
Company experienced a significant decrease in its total revenues during fiscal
year 2008. Management believes any revenues to be
generated from the Companys remaining patent portfolio may be less than those
generated historically and does not rely on this segment to generate
significant revenues or cash flows in the future.

Gross Margin

Consolidated gross margins were $7.9 million
in fiscal year 2008 and $21.2 million in fiscal year 2007. The decrease was
$13.2 million, or 62.5%. Consolidated
gross margin percentages were 78.0% for fiscal year 2008 and 52.4% for fiscal
year 2007. For the year ended July 31, 2007, the intellectual property
licensing segment generated 84.5% of the total gross margins. The $13.2 million decrease in gross margin
for the year ended July 31, 2008, is due primarily to the $17.9
million decrease in gross margin resulting from the intellectual property
licensing segment. Although the total
amount of gross margin decreased in fiscal year 2008 due to the intellectual
property licensing segment not generating any revenues, the gross margin as a
percentage of revenue increased due to the improved performance by the software
and services segment.

Software and Services Business

Software
and services gross margins were $7.9 million in fiscal year 2008 and $3.3
million in fiscal year 2007. The increase was $4.6 million, or 142.0%. Software and services gross margins
represented 78.0% and 77.3% of total software and services revenues for the
years ended July 31, 2008 and 2007, respectively.

The cost of sales associated with the software and services segment
relates primarily to compensation expenses, hardware expenses and the
amortization of the Companys purchased software development costs. These expenses represented approximately
65.4% and 72.0% of the cost of sales for the software and services segment for
the years ended July 31, 2008 and 2007, respectively. As
a result of the Companys acquisition of the iEmployee operations in October 2007,
approximately $0.8 million in compensation expenses and related expenses for
the iEmployee support group were recorded as part of cost of sales. To supplement the demands on the Companys
internal support group, Forgent outsourced certain professional services to one
vendor during fiscal year 2008, which increased deployment expenses by
approximately $0.1 million.
Additionally, Forgent incurred a $0.1 million increase in hardware
expenses during fiscal year 2008, as compared to fiscal year 2007, resulting
from increased sales of LCD panels and barcode scanners to complement sales of
its scheduling and asset management software. Although the purchased
software development costs related to the NetSimplicity acquisition were fully
amortized during fiscal year 2007, this reduction in amortization expenses was
offset by the increase in amortization expenses related to the purchased
software development costs acquired from the iEmployee operations during fiscal
year 2008. The combination of these factors, among others,
led to a $1.3 million increase in cost of sales for fiscal year 2008.

Since a significant portion of the cost of sales for the
software and services segment is relatively fixed, revenues generated from this segment
directly affect gross margins. Despite the overall increase in cost of
sales, the growth in revenues from the software and services segment, due
primarily to the iEmployee acquisition, caused the gross margin to increase in
terms of total dollars and the gross margin as a percentage of revenues to
remain relatively consistent with prior year.
Since Forgent expects to generate
more sales in fiscal year 2009, management expects gross margins to improve, in
terms of total dollars, and to remain relatively consistent in terms of
percentage of revenues, as management continues to implement strategies
to maximize efficiencies throughout the Company.

Intellectual Property Licensing Business

Intellectual property
gross margins were $17.9 million and represented 49.5% of intellectual property
licensing revenues for the year ended July 31, 2007. The
cost of sales from the intellectual property licensing segment relates to the
legal contingency fees incurred on successfully achieving signed license agreements
as well as legal expenses incurred from legal counsels time in connection with
licensing and litigating the Companys patents.
During the year ended July 31, 2008, Forgent did not generate any
intellectual property licensing revenues and thus did not incur any cost of
sales. The 100.0% decrease in
intellectual property licensing revenues directly caused a 100.0% decrease in
intellectual property gross margins, which significantly decreased the Companys
overall gross margins.

Included
in the contingency fees for fiscal year 2007 are fees due to Jenkens &
Gilchrist, P.C. (Jenkens). After Forgent terminated Jenkens, the
Company entered into a Resolution Agreement with Jenkens in December 2004. Under the
Resolution Agreement, the Company believes Jenkens is entitled to $1.4 million
for contingency fees and expenses related to the settlements from the
litigation regarding the Companys DVR patents.
Jenkens interprets the Resolution Agreement on broader terms and
believes it is entitled to $3.4 million, including attorneys

fees and interest. In July 2007, Jenkens filed a complaint
against the Forgent and Compressions Labs, Inc., in
the District Court of Dallas County, Texas.
In its complaint, Jenkens alleges a breach of contract and sought a
declaratory judgment. Forgent disputes
Jenkens claims and is seeking relief through the court system. In March 2008, Forgent and Jenkens
appeared before the Court regarding a hearing on the motion for summary
judgment filed by Jenkens. On May 20,
2008, the Court granted Jenkens motion and ordered Forgent to pay Jenkens $2.8
million for recoveries related to the 746 patent and other amounts including
attorneys fees and interest. Forgent
appealed this Court order and on September 3, 2008, the Court granted
Forgents Motion to Reconsider Order. The
trial date for this litigation is currently scheduled for April 27,
2009. Management currently cannot
predict how long it ultimately will take to resolve the Jenkens lawsuit. Until the Jenkens litigation is finalized,
the related contingency fees and expenses may be adjusted in a future period
and could have a material impact to the Companys consolidated financial
statements.

Selling, General and Administrative

Selling, general and administrative (SG&A)
expenses were $11.2 million in fiscal year 2008 and $12.0 million in fiscal
year 2007. The decrease was $0.8 million, or 6.4%. SG&A
expenses were 110.4% and 29.7% of total revenues for the years ended July 31,
2008 and 2007, respectively.

During the year ended July 31, 2008, the
intellectual property licensing segment had little activity due to the
conclusion of the 672 Litigation and the 746 Litigation during fiscal year
2007. As a result, SG&A expenses
incurred directly by the intellectual property licensing segment decreased by
approximately $3.6 million, of which $2.9 million relates to legal
expenses. This decrease was offset by a
$2.8 million increase due to increases in (1) SG&A expenses incurred
by the iEmployee operations, (2) compensation expenses for Forgents
marketing group and NetSimplicitys sales team, (3) marketing expenses and
(4) legal expenses.

Forgents
SG&A expenses unrelated to the intellectual property licensing segment
increased $2.8 million. First, as a
result of the iEmployee acquisition in October 2007, SG&A expenses
increased by $1.5 million. Second,
during fiscal year 2008, Forgent hired a Director of Marketing and other
marketing personnel to concentrate on creating and expanding market awareness
for all of Forgents software products and services. Additionally, Forgent continued to make investments by hiring additional sales
personnel for its NetSimplicity product line such that each sales
representative could specialize in the Companys software and services and
focus on certain industries and/or smaller territories. This
additional headcount, as well as the increase in commissions paid for the
increased revenues generated during fiscal 2008, led to a $0.8 million increase
in marketing and NetSimplicity sales compensation and benefits expenses for the
year ended July 31, 2008. Third, the heightened focus on Forgents marketing
efforts during fiscal year 2008 also led to an augmentation of the Companys
marketing programs, including more pay-per-click advertising, search engine
optimization, an enhanced website and additional direct marketing efforts, thus
increasing marketing expenses $0.2 million during the year ended July 31,
2008. Fourth, during fiscal year 2008,
Forgents corporate legal expenses increased by $0.3 million due primarily to
the litigation with Wild
Basin One & Two, Ltd. (Wild Basin). On September 25, 2008,
Forgent and Wild Basin reached a settlement agreement and management expects
legal fees to decrease in fiscal year 2009.

With
the conclusion of the Wild Basin litigation, management anticipates significant
savings in rent expense after the Wild Basin lease is assigned, which
assignment should be finalized by December 31, 2008. However, there is no assurance that Forgent
will finalize the lease assignment, or if finalized, that it will occur by the December 31,
2008 deadline. Forgent will continue to make modest investments in both of its
NetSimplicity and iEmployee sales teams, as necessary, in order to further grow
its software and services segment.
Management anticipates further increases in revenues as the Companys
expanded sales and marketing workforce achieves its full productivity potential
in building greater market awareness and generating increased sales. Forgent will also continue to evaluate and
reduce any unnecessary SG&A expenses that do not directly support the
generation of revenues for the Company.

Research and Development

Research and development (R&D) expenses
were $2.2 million in fiscal year 2008 and $0.6 million in fiscal year 2007. The
increase was $1.5 million, or 252.5%.
R&D expenses were 21.1% and 1.5% of total revenues for the years
ended July 31, 2008 and 2007, respectively.

As
a result of Forgents R&D efforts, the Company has achieved several goals
during fiscal year 2008. In November 2007,
the Company introduced a new software
product, Mobile Workforce Manager. This software enables a customers mobile
employees to reserve workspaces and resources when traveling between facilities.
This concept, often referred to as office hoteling, allows customers to
reduce facility costs by improving the utilization of expensive workspace. In January 2008, Forgent announced the
release of MRM 7.6 to address the needs of its customers in higher
education. This new release introduced
features to import data from SunGard Higher Education Banner®, a widely used
collegiate course scheduling solution. Throughout the year ended July 31,
2008, Forgent continued developing its MRM product and released several minor
versions, including MRM 7.7, which improved the MRM Enterprise Outlook®
Scheduling functionality by introducing new flexible and customizable
fields. Other enhancements to MRM
include increased control handling conflicts when booking recurring meetings
and a new feature to the MRM LCD Panel Scheduling that allows customers use
their meeting space more efficiently by reclaiming meeting space that was
scheduled but not used. The Company also
continued to develop VAM throughout fiscal year 2008 and released VAM 5.7,
which introduced the new VAM importer module that enables customers to import
data from legacy or external sources into VAM and provides a technological
foundation for further development efforts for gathering and depositing data into VAM.

Approximately
79.1% of the $1.5 million increase in R&D expenses during the year ended July 31,
2008 related to the acquisition of the iEmployee development operations. During fiscal year 2008, Forgent released an
improved version of iEmployees Time & Attendance product to provide
users with greater visibility and control over Paid-Time-Off (PTO) programs,
including an intuitive accrual wizard which simplifies the implementation and
enforcement of PTO policies.
Additionally, Forgent introduced the iEmployee EasyTouch Time Clock,
which is a small touch-screen enabled Internet appliance that allows employers
to capture employee time punches through a full range of biometric and card
recognition options and provides employees with real-time access to schedules,
time-off balances and attendance history.
Customers can automatically synchronize employee data with the Companys
Time & Attendance solution, thus improving data accuracy, reducing
costs associated with discrepancies and enabling employees and managers to
function more independently. Forgent
also developed and released an enhanced version of iEmployees HR & Benefits product, which introduced a new
feature that allows customers to provide pay stub information to their mobile
employees via select Automated Teller Machines (ATMs).

Forgent
continues to solicit and receive feedback regarding its products and services
from its existing and potential customers.
Forgents development efforts for future releases and enhancements are
driven by listening to all of its customers and gauging marketing trends. As the Company designs and further improves
its workforce management solutions, management
will attempt to maintain R&D expenses at reasonable levels in terms of
percentage of revenue and plans to make modest investments in its
NetSimplicity and iEmployee R&D efforts during fiscal year 2009, as
necessary, in order to further grow its software and services segment.

Impairment of assets

In accordance with SFAS Statement No. 142, Goodwill and Other Intangible Assets, Forgent reviews its goodwill for possible
impairment on an annual basis, or whenever specific events warrant. Due to its continued depressed stock price
and the current market conditions during the fourth fiscal quarter of 2008,
Forgent determined that the decline in its market capitalization may not be
temporary. Due to the decline in its
market capitalization, the Company was
required to perform an impairment analysis on its goodwill. To evaluate its goodwill for impairment,
Forgent used a two-step process. Under
the first step, Forgent determined that the estimated fair value of the
Company, as represented by its market capitalization, was less than its net
book value, thus requiring the completion of the second step of the impairment
analysis. As part of the second step, Forgent allocated the estimated fair
value of the Company, as represented by its market capitalization, to its
assets and liabilities, excluding goodwill, based upon the individual estimated
fair values. As a result of its
allocation process, the Company determined that goodwill had an implied fair
value of $0. An impairment loss is measured as the excess of the book value of
the goodwill over the implied fair value of the goodwill. As a result of the impairment analysis, Forgent
recorded a non-cash $7.4 million goodwill impairment related to its acquisition
of iEmployee to its Consolidated Statement of Operations for the year
ended July 31, 2008. This
impairment had no impact to the Companys tangible net book value or liquidity.

Amortization of intangible
assets

Amortization
expenses were $0.5 million in fiscal year 2008 and $4 thousand in fiscal year
2007. The increase was $0.5 million, or
11,659.1%. Amortization expenses were
4.8% and 0.0% of total revenues for the years ended July 31, 2008 and
2007, respectively. Upon acquiring the iEmployee business in October 2007, Forgent
recorded several intangible assets, which are being amortized over their
appropriate useful lives. The
amortization expenses during the year ended July 31, 2008 relate entirely
to these acquired intangible assets (see Note 5, in
the accompanying financial statements).

Other Income

Other
income was $0.6 million in fiscal year 2008 and $3.8 million in fiscal year
2007. The decrease was $3.2 million, or
83.1%. Other income was 6.3% and 9.4% of
total revenues for the years ended July 31, 2008 and 2007, respectively.

During
fiscal year 2007, Forgent sold certain patents and applications associated with
videoconferencing and related fields and technology, together with related
goodwill, rights and documentation, to Tandberg Telecom AS for $3.2
million. Upon closing, Forgent received $2.9 million of the purchase
price, all of which was recorded as a gain on sale of assets and accounts for
92.0% of the decrease in other income for the year ended July 31,
2008. The purchase price remaining
balance of $0.3 million was held in escrow for two years for indemnity claims.

Income
Taxes

At July 31, 2008, the Company had federal net
operating loss carryforwards of approximately $160.1 million, R&D credit
carryforwards of approximately $5.0 million and alternative minimum tax credit
carryforwards of approximately $0.4 million. The net operating loss and R&D
credit carryforwards will expire in varying amounts from 2009 through 2027, if
not utilized. Minimum tax credit carryforwards carry forward indefinitely.

As
a result of various acquisitions performed by the Company in prior years,
utilization of the net operating losses and credit carryforwards may be subject
to a substantial annual limitation due to the change in ownership provisions
of the Internal Revenue Code of 1986, as amended. The annual limitation may
result in the expiration of net operating losses before utilization.

Due to the uncertainty
surrounding the timing of realizing the benefits of its favorable tax
attributes in future tax returns, the Company has placed a valuation allowance
against the majority of its net deferred tax asset. No deferred tax benefits have been recorded
for the tax year ended July 31, 2007. The deferred tax assets and liabilities
recorded for the tax year ended July 31, 2008 relate to separate filing states
in which iSarla has historically generated taxable income. During the year ended July 31, 2008, the
valuation allowance increased by approximately $1.5 million due primarily to
operations and decreased by approximately $1.4 million and $1.0 million due to
the acquisition of iSarla and the implementation of FIN48, respectively. Approximately $7.4 million of the valuation
allowance relates to tax benefits for stock option deductions included in the net
operating loss carryforward which, when realized, will be allocated directly to
contributed capital to the extent the benefits exceed amounts attributable to
book deferred compensation expense.

Undistributed earnings of the
Companys foreign subsidiaries are considered permanently reinvested and,
accordingly, no provision for U.S. federal or state income taxes has been
provided thereon.

Net (Loss) Income

Net
loss was $12.7 million in fiscal year 2008.
Net income was $12.2 million in fiscal year 2007. The decrease in net income was $24.9 million,
or 203.8%. Net loss as a percentage of
total revenues was 124.8% for the year ended July 31, 2008. Net income as a percentage of total revenues
was 30.3% for the year ended July 31, 2007. The $24.9 million decrease in net income was
due primarily to the decrease in gross margin and the impairment charge during
the year ended July 31, 2008.

Cash used in
operating activities was $13.3 million in fiscal year 2008 and cash provided by
operating activities was $19.9 million in fiscal year 2007. The $13.3 million
of cash used in operating activities during fiscal year 2008 was due primarily
to $12.7 million in net loss and an $8.2 million decrease in accounts payable,
offset by a $7.4 million impairment charge.
The $19.9 million of cash provided by operating activities during fiscal
year 2007 was due primarily to $12.2 million in net income and a $7.2 million increase
in accounts payable. During the year
ended July 31, 2008, Forgent paid its legal counsel $7.4 million in
contingency fees related to its 746 patents settlement and license
agreements. Once the litigation with
Jenkens is finalized, the Company will pay the related contingency fees to
Jenkens in a future period. Aside from
the Jenkens liability, Forgent has no significant single pending cash outflow
from its operations. During fiscal year
2007, Forgent collected $36.0 million in cash receipts from its intellectual
property licensing business, which directly contributed to the $19.9 million of
cash provided by operations. Since the
Company is not actively pursuing additional license agreements, management does
not anticipate significant cash flows to be provided by the intellectual
property licensing segment in the future.
Once Forgent pays Jenkens its contingency fee, management does not
expect any large swings in sources or uses of cash from operations.

Management continues to closely monitor all
of its cash sources and uses from its software and services operations. Average days sales outstanding was 36 days as
of July 31, 2008, a decrease from 50 days as of July 31, 2007. This decrease is driven by the iEmployee
operations which bills customers primarily on a monthly basis and requires
payment upon receipt of the invoice. On
the other hand, the NetSimplicity operations usually provide payment terms of
net 30 days. Forgent continues to
diligently collect its trade accounts receivable from the software and services
segment and reserves for bad debt were approximately 3.5% of its trade accounts
receivables as of July 31, 2008.
With increased cash flow from the anticipated growth in revenues,
expected decrease in rent paid to Wild Basin after Forgents lease is assigned
and prudent uses of cash to grow the business, management believes the Company
is making progress towards generating cash from its operations and has
sufficient funds available on hand to meet its operational needs in the short-term
and long-term.

Cash used in investing activities was $8.1
million in fiscal year 2008 and cash used in investing activities was $2.1
million in fiscal year 2007. The $8.1
million of cash used in investing activities during fiscal year 2008 was due
primarily to $7.4 million paid to acquire the iEmployee business. The $2.1 million of cash used in investing
activities during fiscal year 2007 was due primarily to $1.5 million purchase
of short-term investments and $0.5 million purchase of fixed assets. Forgent continues to explore potential
opportunities in acquiring a growing and profitable public or privately held
technology business or product line. The Company also manages its investment
portfolio in order to fulfill corporate liquidity requirements and maximize
investment returns while preserving the quality of the portfolio.

In
addressing all operational and facility capital requirements, management
continues to evaluate how best to manage operations without expending
significant additional resources and is maximizing its existing office space to
facilitate the growth of its software business.
Forgents current operations are not capital intensive and the
Company purchased minimal fixed assets during past two fiscal years. Approximately
45.3% of Forgents purchased fixed assets during the year ended July 31,
2008 related to leasehold improvements for the Companys expanded sales force
and for one subtenant. Approximately
40.4% of Forgents purchased fixed assets during the year ended July 31,
2007 related to leasehold improvements primarily for new subtenants and
subtenant expansions. Once Forgent successfully assigns its Wild
Basin lease, the Company will cease providing leasehold improvements

in order to attract subtenants. Management does not anticipate any
significant capital expenditures during fiscal year 2009.

The Company leases office space and equipment under
non-cancelable operating leases that expire at various dates through 2013.
Certain leases obligate Forgent to pay property taxes, maintenance and
insurance and include
escalation clauses. The total amount of base rentals over the term of the
Companys leases is charged to expense on a straight-line basis, with the
amount of the rental expense in excess of the lease payments recorded as a
deferred rent liability. Despite the additional lease obligations acquired with the iEmployee operations,
approximately $15.8 million, or 97.3% of the Companys total operating lease
obligations, relate to its corporate office facility at Wild Basin in Austin,
Texas. As of July 31, 2008, Forgent
had $5.6 million in future minimum lease payments receivable under
non-cancelable sublease arrangements.
Additionally, Forgent had a $0.5 million liability related to impairment
charges for the economic value of the lost sublease rental income at its Austin
property. Once Forgent successfully assigns its Wild Basin lease, the Companys
operating lease obligations will significantly decrease. Forgent
may periodically make other commitments and thus become subject to other
contractual obligations.

Cash provided by financing activities was $7
thousand in fiscal year 2008 and cash used in financing activities was $0.5
million in fiscal year 2007. The $0.5
million of cash used in financing activities during fiscal year 2007 was due
primarily to the repayment of the Companys notes payables. As of July 31,
2008, Forgent did not have any notes payable outstanding.

Forgents stock repurchase program allows the
Company to purchase up to 3.0 million shares of the Companys common
stock. During the years ended July 31,
2008 and 2007, Forgent did not repurchase any shares under this program. The shares repurchased by month during the
last quarter of the fiscal year ended July 31, 2008 are as follows:

Issuer
Purchases of Equity Securities

(in thousands except average
price)

Total
Number of
Shares
Repurchased

Average
Price Paid
per Share

Total Number of
Shares Purchased
as Part of a
Publicly
Announced Plan

Maximum
Number of
Shares that may
yet be Purchased
Under the Plans

May 1, 2008 - May 31, 2008

0

$

0.00

0

1,210

June 1, 2008 - June 30, 2008

0

$

0.00

0

1,210

July 1, 2008 - July 31, 2008

0

$

0.00

0

1,210

Total

0

$

0.00

0

1,210

As of July 31, 2008, the Company has repurchased 1,790,401 shares
for approximately $4.8 million.
Management will periodically assess repurchasing additional shares
during fiscal year 2009, depending on the Companys cash position, market
conditions and other factors.

As
of July 31, 2008, Forgents principal sources of liquidity consisted of
$14.7 million in cash, cash equivalents and short-term investments. Management plans to utilize these cash
balances to expand its software operations by making additional prudent
investments, to continue exploring potential opportunities in acquiring a
growing and profitable public or privately held technology business or product
line, and possibly to repurchase outstanding shares. There
is no assurance that the Company will be able to limit its cash consumption and
preserve its cash balances, and it is possible that the Companys future
business demands may lead to cash utilization at levels greater than recently
experienced. Management believes that the Company has sufficient capital and
liquidity to fund and cultivate growth of its current and future operations for
the next 12 months and thereafter. However,
due to uncertainties related to the timing and costs of these efforts, Forgent
may need to raise additional capital in the future. Yet, there is no assurance that the Company
will be able to raise additional capital if and when it is needed.

CRITICAL ACCOUNTING POLICIES

The Companys
consolidated financial statements have been prepared in accordance with U.S.
generally accepted accounting principles and include the accounts of Forgents
wholly owned subsidiaries. All significant

intercompany transactions
and balances have been eliminated in the consolidation. Preparation of the
consolidated financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of the assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
These estimates are subjective in nature and involve judgments that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at fiscal year end and the reported amounts of revenues and
expenses during the fiscal year. The
more significant estimates made by management include the valuation allowance
for the gross deferred tax asset, contingency legal reserves, lease impairment,
useful lives of fixed assets, the determination of the fair value of its
long-lived assets, and the fair value of assets acquired and liabilities
assumed during the recent acquisition. The Company bases its estimates on historical experience and on various
other assumptions that are believed to be reasonable under the given
circumstances. These estimates
could be materially different under different conditions and assumptions. Additionally, the actual amounts could differ
from the estimates made. Management periodically evaluates estimates used in
the preparation of the financial statements for continued reasonableness.
Appropriate adjustments, if any, to the estimates used are made prospectively
based upon such periodic evaluation.

The Company recognizes revenue when persuasive evidence of an
arrangement exists, delivery has occurred, the fee is fixed or determinable and
collectibility is probable. The Company
recognizes software license revenue in accordance with Statement of Position (SOP)
97-2, Software Revenue Recognition, as
amended by SOP 98-4, Deferral of the Effective Date
of a Provision of SOP 97-2, and SOP 98-9, Modification
of SOP 97-2 With Respect to Certain Transactions,
Securities and Exchange Commission Staff Accounting Bulletin 104, Revenue Recognition, and Emerging Issues
Task Force Issue No. 00-21, Revenue
Arrangements with Multiple Deliverables. The Company recognizes software subscription
revenue in accordance with EITF Issue No. 00-3, Application of AICPA Statement of Position 97-2 to Arrangements That
Include the Right to Use Software Stored on Another Entitys Hardware and
EITF Issue No. 00-21.

Revenue consists of
software license, software subscription and service fees. Revenue from the software element is earned
through the licensing or right to use the Companys software and from the sale
of specific software products. Service
fee income is earned through the sale of maintenance and technical support,
training and installation. Revenue from the sale of hardware devices is
recognized upon shipment of the hardware.
Forgent sells multiple elements within a single sale. For software license arrangements, the
Company allocates the total fee to the various elements based on the relative
fair values of the elements specific to the Company. For software subscription arrangements, the
Company recognizes the total contract value ratably over the contract term.

The Company determines
the fair value of each element in the arrangement based on vendor-specific
objective evidence (VSOE) of fair value. VSOE of fair value for the software,
maintenance, and training and installation services are based on the prices
charged for the software, maintenance and services when sold separately. Revenue allocated to maintenance and
technical support is recognized ratably over the maintenance term (typically
one year). Revenue allocated to
installation and training is recognized upon completion of these services. The Companys training and installation
services are not essential to the functionality of its products as such
services can be provided by a third party or the customers themselves.

For
instances in which VSOE cannot be determined for undelivered elements, and
these undelivered elements do not provide significant customization or
modification of its software product, Forgent recognizes the entire contract
amount ratably over the period during which the services are expected to be
performed.

The Company does not recognize revenue for agreements with rights of
return, refundable fees, cancellation rights or acceptance clauses until such
rights of return, refund or cancellation have expired or acceptance has
occurred. The Companys arrangements
with resellers do not allow for any rights of return.

Deferred revenue includes amounts received from customers in excess of
revenue recognized, and is comprised of deferred maintenance, service and other
revenue. Deferred revenues are
recognized in the

Consolidated Statements of
Operations when the service is completed and over the terms of the
arrangements, primarily ranging from one to three years.

Intellectual property licensing revenue is
derived from the Companys Patent Licensing Program, which has generated
licensing revenues relating to the Companys technologies embodied in the 672
patent and the 746 patent. Intellectual property licensing does not
include elements such as technical support, upgrade protection, bug fixes or
other services and, accordingly, gross intellectual property licensing revenue
is recognized at the time a license agreement has been executed and collection
has been deemed probable. Related costs are recorded as cost of
sales. The cost of sales on the intellectual property licensing business
relates to contingent legal fees incurred on successfully achieving signed
agreements, as well as legal fees incurred based upon legal counsels time. For
settlement arrangements that involved litigation, the Company considered such
arrangements to have both an intellectual property licensing element and a
litigation element. For these multiple element arrangements, the Company
allocated a portion of the total settlement amount to the intellectual property
licensing element based upon the estimated fair value of the intellectual
property licensing element using its historical sold-separately experience.
Using the residual method, the Company then allocated the remaining unallocated
total settlement amount of the arrangement to litigation element which is
recorded as Other Income. Through July 31, 2008, no significant amounts
have been allocated to the litigation element.

Impairment of Goodwill, Intangible Assets and
Long-Lived Assets

Goodwill
and other intangible assets with indefinite lives are not required to be amortized under
Financial Accounting Standard Board (FASB) Statement No. 142, Goodwill and Other Intangible Assets, and
accordingly, the Company reviews its
goodwill for possible impairment on an annual basis, or whenever specific
events warrant. Events that may create an impairment review include, but are
not limited to: significant and sustained decline in the Companys stock price
or market capitalization, significant underperformance of operating units and
significant changes in market conditions and trends. Forgent uses a two-step
process and a discounted cash flow model to evaluate its assets for impairment. If the carrying amount of
the goodwill or asset exceeds its implied fair value, an impairment loss is
recognized in an amount equal to the excess during that fiscal period. Intangible assets that are not deemed to have
indefinite lives are amortized over their useful lives and are tested for
impairment in accordance with FASB Statement No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets.

In accordance with Statement No. 144, Forgent reviews and
evaluates its long-lived assets for impairment whenever events or changes in
circumstances indicate that their net book value may not be recoverable.
When such factors and circumstances exist, including those noted above,
the Company compares the assets carrying amounts against the estimated
undiscounted cash flows to be generated by those assets over their estimated
useful lives. If the carrying amounts are greater than the undiscounted
cash flows, the fair values of those assets are estimated by discounting the
projected cash flows. Any excess of the
carrying amounts over the fair values are recorded as impairments in that
fiscal period.

RECENT ACCOUNTING
PRONOUNCEMENTS

In December 2007,
the Financial Accounting Standard Board (FASB) issued Statement No. 141(R),
Business Combinations. Statement No. 141(R) establishes
principles and requirements for how an acquirer recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed,
any non-controlling interest in the acquiree and the goodwill acquired in the
business combination. The statement also
establishes disclosure requirements which will enable users to evaluate the nature
and financial effects of the business combination. Statement No. 141(R) is
effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008. As such, the Company will adopt
these provisions for any business combination after August 1, 2009. The adoption of Statement No. 141(R) may
have an impact on Forgents accounting for future business combinations once
adopted.

In February 2007,
the FASB issued Statement No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities. Statement
No. 159 provides companies with an option to report selected financial
assets and liabilities at fair value. The standards objective is to reduce
both complexity in accounting for financial instruments and the volatility in
earnings caused by measuring related assets and liabilities differently. The standard requires companies to provide
additional information that will help investors and other users of financial
statements to more easily understand the effect of the companys choice to use
fair value on its earnings. It also requires companies to

display the fair value of
those assets and liabilities for which the company has chosen to use fair value
on the face of the balance sheet. This statement does not eliminate disclosure
requirements included in other accounting standards, including requirements for
disclosures about fair value measurements included in Statement No. 157, Fair Value Measurements, and Statement No. 107,
Disclosures about Fair Value of Financial
Instruments. Statement No. 159 is effective as of the
beginning of fiscal years beginning after November 15, 2007. Forgent
adopted Statement No. 159, effective August 1, 2008, and does not
anticipate a material impact to its financial position and results of
operations.

In September 2006,
the FASB issued Statement No. 157, Fair
Value Measurements. Statement No. 157 defines fair
value, establishes a framework for measuring fair value in U.S. generally
accepted accounting principles and expands disclosures about fair value
measurements. Statement No. 157 is effective for fiscal years
beginning after November 15, 2007 and interim periods within those fiscal
years. Forgent adopted Statement No. 157, effective August 1, 2008,
and does not anticipate a material impact to its financial position and results
of operations.

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK

The
Company is a smaller reporting company as defined by Rule 12b-2 under the
Exchange Act and is not required to provide the information required under this
item.

ITEM
8.FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA

The
financial statements and supplementary data required by this Item 8 are
listed in Items 15 (1) and (2) of Part III of this Report (Exhibits, Financial Statement Schedules).

ITEM 9.CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A(T).CONTROLS AND PROCEDURES

The Companys
management is responsible for establishing and maintaining adequate internal
control over financial reporting for the Company. The Company maintains disclosure controls and
procedures that are designed to ensure that information required to be
disclosed in the reports it files under the Securities and Exchange Act of
1934, as amended, is recorded, processed, summarized and reported within the
time periods specified in the rules and forms of the Securities and
Exchange Commission. Such controls
include those designed to ensure that information for disclosure is
communicated to management, including the Chairman of the Board and the Chief
Executive Officer (CEO), as appropriate to allow timely decisions regarding
required disclosure.

The Companys CEO
and Chief Financial Officer, with the participation of management, have
evaluated the effectiveness of the Companys disclosure controls and procedures
as of July 31, 2008. Based on their
evaluation, they have concluded, to the best of their knowledge and belief,
that the disclosure controls and procedures, including internal controls over
financial reporting, are effective. No
changes were made in the Companys internal controls over financial reporting
during the fourth fiscal quarter ended July 31, 2008, that have materially
affected, or are reasonably likely to materially affect, the Companys internal
controls over financial reporting. In
making this assessment, management used the criteria set forth in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Tradeway Commission.

This annual report
does not include an attestation report of the Companys registered public
accounting firm regarding internal control over financial reporting. Managements report was not subject to
attestation by the Companys registered public accounting firm pursuant to
temporary rules of the Securities and Exchange Commission that permit the
Company to provide only managements reporting in this annual report.

PART III

ITEM 10.DIRECTORS AND
EXECUTIVE OFFICERS OF THE REGISTRANT

The information required under this item,
including the Companys Business Conduct and Code of Ethics, is incorporated by
reference from the Companys definitive proxy statement relating to its annual
meeting of shareholders, which will be filed with the Securities and Exchange
Commission within 120 days of the end of fiscal year 2008.

ITEM 11.EXECUTIVE
COMPENSATION

The information required under this item is
incorporated by reference from the Companys definitive proxy statement
relating to its annual meeting of shareholders, which will be filed with the
Securities and Exchange Commission within 120 days of the end of fiscal
year 2008.

The information required under this item,
with the exception of the table provided below, is incorporated by reference
from the Companys definitive proxy statement relating to its annual meeting of
shareholders, which will be filed with the Securities and Exchange Commission
within 120 days of the end of fiscal year 2008.

EQUITY COMPENSATION PLAN INFORMATION

The
following table provides information as of July 31, 2008 with respect to
the shares of the Companys common stock that may be issued under the Companys
existing equity compensation plans.

A

B

C

Plan Category

Number of Securities
to be Issued upon
Exercise of
Outstanding Options

Weighted Average
Exercise Price of
Outstanding Options

Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column A)

(2)All of the Companys
equity compensation plans have been previously approved by the Companys
stockholders.

(3)Excludes purchase rights
accruing under the Companys Restricted Stock Plan and Employee Stock Purchase
Plan which have a combined stockholder approved reserve of 399,209 shares. Under
the Employee Stock Purchase Plan, each eligible employee may purchase up to
2,500 shares per quarter (but in no case can the participant contribute more
than 15% of base pay) of common stock at quarterly intervals on the last day of
the calendar quarter (i.e. March, June, September, and December) each year at a
purchase price per share equal to 85% of the lower of (i) the average
selling price per share of common stock on the first day of the quarter or (ii) the
average selling price per share on the quarterly purchase date.

(4)Includes shares available
for future issuance under the Companys Restricted Stock Plan and Employee
Stock Purchase Plan. As of July 31,
2008, 333,315 shares of common
stock were available for issuance under the Restricted Stock Plan and 29,099 shares of common stock were
available for issuance under the Employee Stock Purchase Plan.

The information required under this item is
incorporated by reference from the Companys definitive proxy statement
relating to its annual meeting of shareholders, which will be filed with the
Securities and Exchange Commission within 120 days of the end of fiscal
year 2008.

ITEM 14.PRINCIPAL
ACCOUNTANT FEES AND SERVICES

The information required under this item is
incorporated by reference from the Companys definitive proxy statement
relating to its annual meeting of shareholders, which will be filed with the
Securities and Exchange Commission within 120 days of the end of fiscal
year 2008.

PART IV

(1) The following financial statements of the
Company are filed as a part of this Report:

Report of Independent
Registered Public Accounting Firm

Consolidated Financial Statements

Consolidated Balance
Sheets as of July 31, 2008 and 2007

Consolidated
Statements of Operations for the years ended July 31, 2008 and 2007

Consolidated Statements of Changes in
Stockholders Equity for the years ended July 31, 2008 and 2007

Consolidated
Statements of Cash Flows for the years ended July 31, 2008 and 2007

Notes to Consolidated Financial Statements

(2) Financial
Statement Schedules:

All schedules for
which provision is made in the applicable account regulation of the Securities
and Exchange Commission are either not required under the related instructions,
are inapplicable or the required information is included elsewhere in the
Consolidated Financial Statements and incorporated herein by reference.

(b)Exhibits

The exhibits filed
in response to Item 601 of Regulations S-K are listed in the Index to the
Exhibits.

We have audited the accompanying consolidated balance sheets of Forgent
Networks, Inc. as of July 31, 2008 and 2007, and the related
consolidated statements of operations, changes in stockholders equity, and
cash flows for the years then ended. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform an
audit of the Companys internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Companys internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Forgent Networks, Inc. at July 31, 2008 and 2007, and the
consolidated results of its operations and its cash flows for the years then
ended, in conformity with U.S. generally accepted accounting principles.

Forgent Networks, Inc. (Forgent or the Company), a Delaware
corporation d/b/a Asure Software and incorporated in
1985, is a provider of web-based workforce management solutions that
enable organizations to manage their office environment as well as their human resource and
payroll processes effectively and efficiently and a licensor
of intellectual property.

In
September 2007, the Company announced its name change to Asure Software
to reflect the Companys focus on its software and services segment for its future growth. In October 2007, Forgent purchased
iSarla Inc., a Delaware corporation and application service provider that
offers on-demand software solutions that help simplify the human resource
process and improve employee productivity by managing and communicating human
resources, employee benefits and payroll information. Under the trade name iEmployee, these
web-based solutions include Time & Attendance, Timesheets, Human
Resource Benefits, Expenses and others. Forgents software business
also includes software products and services from its NetSimplicity product
line, which provides simple and affordable solutions to common office
administration problems. NetSimplicitys
flagship product, Meeting Room Manager, automates the entire facility
scheduling process: reserving rooms, requesting equipment, ordering food,
sending invitations, reporting on the meeting environment and more. The Company also markets Visual Asset
Manager, a web based management tool that enables companies to efficiently inventory,
track and manage their fixed, mobile and IT assets across the entire
organization.

Forgents intellectual
property licensing business is derived from the Companys Patent Licensing
Program, which generated licensing revenues related to the Companys U.S.
Patent No. 4,698,672 (the  672 patent) and its foreign counterparts, as
well as its U.S. Patent No. 6,285,746 (the  746 patent). During fiscal year 2007, the Company settled
with the remaining defendants in the litigations related to the 672 patent and
the 746 patent and considered these litigations to be concluded. During fiscal year 2008, the Company did not
actively pursue additional license agreements from the 672 patent, the 746
patent or any other patent. Management
believes any additional revenues to be generated from the Companys remaining
patent portfolio may be less than those generated historically. The focus of
the Companys future and growth is on its software and services segment.

2.SIGNIFICANT
ACCOUNTING POLICIES

REVENUE RECOGNITION

The
Company recognizes revenue when persuasive evidence of an arrangement exists,
delivery has occurred, the fee is fixed or determinable and collectibility is
probable. The Company recognizes
software license revenue in accordance with Statement of Position (SOP) 97-2,
Software Revenue Recognition, as
amended by SOP 98-4, Deferral of the Effective
Date of a Provision of SOP 97-2, and SOP 98-9, Modification of SOP 97-2 With Respect to Certain
Transactions, Securities and Exchange Commission Staff
Accounting Bulletin 104, Revenue
Recognition, and Emerging Issues Task Force Issue No. 00-21, Revenue Arrangements with Multiple Deliverables. The Company recognizes software subscription
revenue in accordance with EITF Issue No. 00-3, Application of AICPA Statement of Position 97-2 to Arrangements That
Include the Right to Use Software Stored on Another Entitys Hardware and
EITF Issue No. 00-21.

Revenue consists of
software license, software subscription and service fees. Revenue from the software element is earned
through the licensing or right to use the Companys software and from the sale
of specific software products. Service
fee income is earned through the sale of maintenance and technical support,
training and installation. Revenue from the sale of hardware devices is
recognized upon shipment of the hardware.
Forgent sells multiple elements within a single sale. For software license arrangements, the
Company allocates the total fee to the various elements based on the relative
fair values of the elements specific to the Company. For software subscription arrangements, the
Company recognizes the total contract value ratably over the contract term.

The Company determines
the fair value of each element in the arrangement based on vendor-specific
objective evidence (VSOE) of fair value. VSOE of fair value for the software,
maintenance, and training and installation services are based on the prices
charged for the software, maintenance and services when sold separately. Revenue allocated to maintenance and technical
support is recognized ratably over the maintenance term (typically one
year). Revenue allocated to installation
and training is recognized upon completion of these

services. The Companys training and installation services
are not essential to the functionality of its products as such services can be
provided by a third party or the customers themselves.

For
instances in which VSOE cannot be determined for undelivered elements, and
these undelivered elements do not provide significant customization or
modification of its software product, Forgent recognizes the entire contract
amount ratably over the period during which the services are expected to be
performed.

The
Company does not recognize revenue for agreements with rights of return,
refundable fees, cancellation rights or acceptance clauses until such rights of
return, refund or cancellation have expired or acceptance has occurred. The Companys arrangements with resellers do
not allow for any rights of return.

Deferred
revenue includes amounts received from customers in excess of revenue
recognized, and is comprised of deferred maintenance, service and other
revenue. Deferred revenues are
recognized in the Consolidated Statements of Operations when the service is
completed and over the terms of the arrangements, primarily ranging from one to
three years.

Intellectual property
licensing revenue is derived from the Companys Patent Licensing Program, which
has generated licensing revenues relating to the Companys technologies
embodied in the 672 patent and the 746 patent. Intellectual property
licensing does not include elements such as technical support, upgrade
protection, bug fixes or other services and, accordingly, gross intellectual
property licensing revenue is recognized at the time a license agreement has
been executed and collection has been deemed probable. Related costs are
recorded as cost of sales. The cost of sales on the intellectual property
licensing business relates to contingent legal fees incurred on successfully
achieving signed agreements, as well as legal fees incurred based upon legal
counsels time. For settlement arrangements that involved litigation, the
Company considered such arrangements to have both an intellectual property licensing
element and a litigation element. For these multiple element arrangements, the
Company allocated a portion of the total settlement amount to the intellectual
property licensing element based upon the estimated fair value of the
intellectual property licensing element using its historical sold-separately
experience. Using the residual method, the Company then allocated the remaining
unallocated total settlement amount of the arrangement to litigation element
which is recorded as Other Income. Through July 31, 2008, no significant
amounts have been allocated to the litigation element.

BASIS OF PRESENTATION

Forgents consolidated financial statements have been
prepared in accordance with U.S. generally accepted accounting principles and
include the accounts of the Company and its wholly owned subsidiaries. All
intercompany transactions and balances have been eliminated in consolidation.

USE OF ESTIMATES

Preparation of the consolidated financial statements in conformity with
U.S. generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of the assets
and liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. These estimates are subjective in nature and
involve judgments that affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities at fiscal year end and the
reported amounts of revenues and expenses during the fiscal year. The more significant estimates made by
management include the valuation allowance for the gross deferred tax assets, contingency legal reserves, lease
impairment, useful lives of fixed assets, the determination of the fair value
of its long-lived assets, and the fair value of assets acquired and liabilities
assumed during the recent acquisition. The Company bases its
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the given circumstances. These estimates could be materially different
under different conditions and assumptions.
Additionally, the actual amounts could differ from the estimates made.
Management periodically evaluates estimates used in the preparation of the
financial statements for continued reasonableness. Appropriate adjustments, if
any, to the estimates used are made prospectively based upon such periodic
evaluation.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash and investments in highly liquid
investments with an original maturity of three months or less when purchased. All other
investments not considered to be cash equivalents, including highly liquid
investments with maturities greater than three months, are separately
classified as short-term investments.

SHORT-TERM INVESTMENTS

Short-term investments are carried at market value. Short-term
investments consist of funds invested in U.S. government agency securities and
mature within one year of July 31, 2008 and 2007. The carrying amounts of the Companys
short-term investments at July 31, 2008 and 2007 are as follows:

2008

2007

MARKET

MARKET

COST

VALUE

COST

VALUE

U.S. Government Agency Securities

$

2,632

$

2,627

$

1,526

$

1,538

$

2,632

$

2,627

$

1,526

$

1,538

The Company accounts for investment securities under Statement of
Financial Accounting Standard (SFAS) Statement No. 115, Accounting for Certain Investments in Debt and Equity
Securities. Statement No. 115 requires investment securities
to be classified as held-to-maturity, trading or available-for-sale based on
the characteristics of the securities and the activity in the investment
portfolio. At July 31, 2008 and 2007, all investment securities were
classified as available-for-sale. The Company specifically identifies its
short-term investments and uses the cost of the investments as the basis for
recording unrealized gains and losses as part of other comprehensive income on
the Consolidated Balance Sheet and for recording realized gains and losses as
part of other income and expenses on the Consolidated Statement of Operations.
As of July 31, 2008 and 2007, the Company had $2 and $11 in unrealized
losses or gains on available-for-sale securities, respectively. The Company did
not realize any related losses or gains during the years ended July 31,
2008 and 2007, respectively.

FAIR VALUE OF FINANCIAL
INSTRUMENTS

The Companys financial instruments consist primarily of cash and cash
equivalents, short-term investments, trade accounts receivable and accounts
payable. The current carrying amounts of
these financial instruments approximate their fair market values because of the
short-term nature of these instruments.

CREDIT POLICY

The Company reviews potential customers credit ratings to evaluate
customers ability to pay an obligation within the payment term, which is
usually net thirty days. When payment is
reasonably assured and no known barriers exist to legally enforce the payment,
the Company extends credit to customers, which usually does not exceed 10% of
their net worth. An account is placed on Credit Hold if a placed order
exceeds the credit limit and may be placed on Credit Hold sooner if
circumstances warrant. The Company
follows its credit policy consistently and constantly monitors all of its
delinquent accounts for indications of uncollectibility.

CONCENTRATION OF CREDIT RISK

The Company grants credit to customers in the ordinary course of
business. Concentrations of credit risk related to the Companys trade accounts
receivable are limited due to the large number of customers, including
third-party resellers, and their dispersion across several industries and
geographic areas. The Company performs ongoing credit evaluations of
its customers and maintains reserves for potential credit losses. The Company
requires advanced payments or secured transactions when deemed necessary.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

The
Company maintains an allowance for doubtful accounts at an amount estimated to
be sufficient to provide adequate protection against losses resulting from
extending credit to the Companys customers.
This allowance is based in the aggregate, on historical collection
experience, age of receivables, and general economic conditions. The allowance
for doubtful accounts also considers the need for specific customer reserves
based on the customers payment experience, credit-worthiness and age of receivable
balances. Forgents
bad debts have not been material and have been within management
expectations. The allowances for
doubtful accounts as of July 31, 2008 and 2007 are as follows:

BALANCE
AT
BEGINNING
OF YEAR

PROVISION
FOR
DOUBTFUL
ACCOUNTS
RECEIVABLE

WRITE-OFF OF
UNCOLLECTIBLE
ACCOUNTS
RECEIVABLE

BALANCE
AT
END OF
YEAR

Year ended July 31, 2008

$

21

21

(1

)

$

41

Year ended July 31, 2007

13

18

(10

)

21

INVENTORY

Inventory is recorded at
cost and includes purchased LCD panels and
barcode scanners that are sold as part of the Companys workforce management
solutions to complement the NetSimplicity MRM and VAM software products. Due to the minimal level of inventory
maintained and the quick turnover in inventory, reserves for excess and
obsolescence is not considered necessary.

PROPERTY AND EQUIPMENT

Property and equipment, including software, furniture and equipment, are
recorded at cost less accumulated depreciation. Internal support equipment is
video teleconferencing equipment used internally for purposes such as sales and
marketing demonstrations, Company meetings, testing, troubleshooting customer
problems and engineering, and is recorded at manufactured cost, if the Company
manufactured the asset or is recorded at cost, if purchased. Depreciation is
recorded using the straight-line method over the estimated economic useful
lives of the assets, which range from two to five years. Property and equipment also
includes leasehold improvements and capital leases, which are recorded at cost
less accumulated amortization.
Amortization of leasehold improvements and capital leases is recorded
using the straight-line method over the shorter of the lease
term or over the life of the respective assets, as applicable. Gains or losses
related to retirements or disposition of fixed assets are recognized in the
period incurred. Repair and maintenance costs are expensed as
incurred. The Company periodically reviews the estimated economic useful lives
of its property and equipment and makes adjustments, if necessary, according to
the latest information available.

IMPAIRMENT OF GOODWILL, INTANGIBLE ASSETS AND
LONG-LIVED ASSETS

Goodwill
and other intangible assets with indefinite lives are not required
to be amortized under SFAS Statement No. 142, Goodwill and Other Intangible Assets, and
accordingly, the Company reviews its goodwill for possible impairment
on an annual basis, or whenever specific events warrant. Events that may create
an impairment review include, but are not limited to: significant and sustained
decline in the Companys stock price or market capitalization, significant
underperformance of operating units and significant changes in market
conditions and trends. Forgent uses a two-step process and a discounted
cash flow model to evaluate its assets for impairment. If the carrying
amount of the goodwill or asset exceeds its implied fair value, an impairment
loss is recognized in an amount equal to the excess during that fiscal
period. Intangible assets that are not
deemed to have indefinite lives are amortized over their useful lives and are
tested for impairment in accordance with SFAS Statement No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets.

In
accordance with Statement No. 144, Forgent reviews and evaluates its
long-lived assets for impairment whenever events or changes in circumstances
indicate that their net book value may not be recoverable. When such

factors
and circumstances exist, including those noted above, the Company compares the
assets carrying amounts against the estimated undiscounted cash flows to be
generated by those assets over their estimated useful lives. If the
carrying amounts are greater than the undiscounted cash flows, the fair values
of those assets are estimated by discounting the projected cash flows. Any excess of the carrying amounts over the
fair values are recorded as impairments in that fiscal period.

ADVERTISING COSTS

The Company expenses advertising costs as
they are incurred. Advertising expenses
were $35 and $16 for the years ended July 31, 2008 and 2007, respectively,
and are recorded as part of sales and marketing expenses on the Consolidated
Statements of Operations.

LEASE OBLIGATIONS

Forgent recognizes its lease obligations
with scheduled rent increases over the term of the lease on a straight-line
basis. Accordingly, the total amount of base rentals over the term of the
Companys leases is charged to expense on a straight-line method, with the
amount of rental expense in excess of lease payments recorded as a deferred
rent liability. As of July 31, 2008 and 2007, the Company had
deferred rent liabilities of $70 and $58, respectively, all of which are
classified as long-term liabilities. The Company also recognizes capital lease
obligations and records the underlying assets and liabilities on its
Consolidated Balance Sheets. As of July 31, 2008 and 2007, Forgent had $48
and $1 in capital lease obligations, respectively.

FOREIGN CURRENCY TRANSLATION

The
financial statements of the Companys foreign subsidiaries are measured using
the local currency as the functional currency. Accordingly, the assets and
liabilities of these foreign subsidiaries are translated at current exchange
rates at each balance sheet date. Translation adjustments arising from the
translation of net assets located outside of the United States into United
States dollars are recorded in accumulated other comprehensive income (loss) as
a separate component of stockholders equity. Income and expenses from the
foreign subsidiaries are translated using monthly average exchange rates. Net
gains and losses resulting from foreign exchange transactions are included in
other income and expenses and were not significant in fiscal years 2008 and
2007.

INCOME TAXES

The Company accounts for income taxes using the liability method under SFAS
Statement No. 109, Accounting for
Income Taxes, which requires recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that
have been included in the financial statements. Under the liability method,
deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect in the years in which the differences are expected
to reverse. Deferred tax assets are reduced by a valuation
allowance when it is more likely than not that some component or all of the
deferred tax assets will not be realized.

In June 2006,
the Financial Accounting Standard Board (FASB) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxesan
interpretation of FASB Statement No. 109 (FIN 48). FIN
48 clarifies the accounting for uncertainty in income taxes recognized in an
enterprises financial statements in accordance with Statement No. 109, Accounting for Income Taxes. This
interpretation defines the minimum recognition threshold a tax position is
required to meet before being recognized in the financial statements.
Additionally, FIN 48 provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods and transition. FIN 48 is
effective for fiscal years beginning after December 15, 2006. Forgent
adopted FIN48, effective August 1, 2007.
The adoption did not have a material effect on the Companys
consolidated financial statements.

SHARE BASED COMPENSATION

In
December 2004, the FASB issued Statement No. 123 (Revised 2004), Share-Based Payment (No. 123R).
This revised standard addresses the accounting for stock-based payment
transactions in which a company receives employee services in exchange for
either equity instruments of the company or liabilities that are based on

the
fair value of the companys equity instruments or that may be settled by the
issuance of such equity instruments. Under this standard, companies may not
account for stock-based compensation transactions using the intrinsic-value
method in accordance with APB Opinion No. 25,  Accounting for Stock Issued to Employees. Instead, companies are required to account
for such transactions using a fair-value method and recognize the related
expense in the Consolidated Statement of Operations.

The
Company adopted Statement No. 123R, effective August 1, 2005, using
the modified prospective application transition method. The modified
prospective application method requires that companies recognize compensation
expense on stock-based payment awards that are modified, repurchased or
cancelled after the effective date. The
fair value of each award granted from Forgents stock option plans are
estimated at the date of grant using the Black-Scholes option pricing model. No options were granted during the year
ended July 31, 2007 and 2008.

As
of July 31, 2008, $20 of unrecognized compensation costs related to
non-vested option grants is expected to be recognized over the course of the
following 1.5 years.

On August 1, 2006, the Companys Board of
Directors approved the repricing of all employee stock options with an exercise
price greater than $0.385 (the average of the high and low for August 1,
2006). The new exercise price was $0.385. The Board of Directors determined
that the repricing was the most cost effective way to motivate employees with
options that had exercise prices greater than the current fair market
value. The repricing resulted in a
charge of $88 based on the incremental fair value of the new options versus the
fair value of the old options for the year ended July 31, 2007.

The
Company issued 38shares 224 shares of common stock
related to exercises of stock options granted from its Stock Option and Stock
Purchase Plans for the years ended July 31, 2008 and 2007, respectively.
The Company issued 372shares of
restricted common stock from its Restricted Stock Plan for the year ended July 31,
2008 and did not issue any shares of restricted common stock from its
Restricted Stock Plan for the year ended July 31, 2007.

COMPREHENSIVE (LOSS) INCOME

In
accordance with the disclosure requirements of SFAS Statement No. 130, Reporting Comprehensive Income, the
Companys comprehensive (loss) income is comprised of net (loss) income,
foreign currency translation adjustments and unrealized gains and losses on
short-term investments held as available-for-sale securities. Comprehensive loss for the year ended July 31,
2008 is $12,765. Comprehensive income
for the year ended July 31, 2007 is $12,256.

RECENT ACCOUNTING
PRONOUNCEMENTS

In December 2007,
the Financial Accounting Standard Board (FASB) issued Statement No. 141(R),
Business Combinations. Statement No. 141(R) establishes
principles and requirements for how an acquirer recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed,
any non-controlling interest in the acquiree and the goodwill acquired in the
business combination. The statement also
establishes disclosure requirements which will enable users to evaluate the nature
and financial effects of the business combination. Statement No. 141(R) is
effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008. As such, the Company will adopt
these provisions for any business combination after August 1, 2009. The adoption of Statement No. 141(R) may
have an impact on Forgents accounting for future business combinations once
adopted.

In February 2007,
the FASB issued Statement No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities. Statement
No. 159 provides companies with an option to report selected financial
assets and liabilities at fair value. The standards objective is to reduce both
complexity in accounting for financial instruments and the volatility in
earnings caused by measuring related assets and liabilities differently. The standard requires companies to provide
additional information that will help investors and other users of financial
statements to more easily understand the effect of the companys choice to use
fair value on its earnings. It also requires companies to display the fair
value of those assets and liabilities for which the company has chosen to use
fair value on the face of the balance sheet. This statement does not eliminate
disclosure requirements included in other accounting standards, including
requirements for disclosures about fair value measurements included in
Statement No. 157, Fair Value
Measurements, and Statement No. 107, Disclosures about Fair Value of Financial
Instruments. Statement No. 159 is effective as of the
beginning of fiscal years beginning after November 15, 2007. Forgent
adopted Statement No. 159, effective August 1, 2008, and does not
anticipate a material impact to its financial position and results of
operations.

In September 2006,
the FASB issued Statement No. 157, Fair
Value Measurements. Statement No. 157 defines fair
value, establishes a framework for measuring fair value in U.S. generally
accepted accounting principles and expands disclosures about fair value
measurements. Statement No. 157 is effective for fiscal years
beginning after November 15, 2007 and interim periods within those fiscal
years. Forgent adopted Statement No. 157, effective August 1, 2008,
and does not anticipate a material impact to its financial position and results
of operations.

NOTE 3 - ACQUISITION

On October 5,
2007, Forgent acquired all of the outstanding capital stock of iSarla Inc., a
Delaware corporation and application service provider that offers on-demand
software solutions that help simplify the human resource process and improve
employee productivity by managing and communicating human resources, employee
benefits and payroll information. iSarla Inc. conducted its business under the
trade name iEmployee and provided hosted application services, including Time &
Attendance, Timesheets, Human Resource Benefits, Expenses and other
solutions. iEmployee was a profitable
business with a high percentage of recurring revenues and delivers its software
as a service under the SaaS model. The
acquisition expanded Forgents current target markets, significantly augmented
the Companys product and service offerings to customers, and increased revenues
from its operations considerably. Due to
these factors, the Company purchased the iEmployee business at a premium (i.e.
goodwill) over the fair value of the net assets acquired.

In consideration for the acquisition, Forgent paid approximately $12,661,
including $6,602in cash, 5,095
shares of its Common Stock, valued at approximately $4,987 and transaction cost
of approximately $1,072. The shares of
Common Stock issued were valued based upon the price of $0.98 when the number
of shares to be issued became fixed.
Upon closing, $990 in cash and 764 shares totaling $748 of the purchase
price were held in escrow for representations and warranties. The purchase agreement did not include
provisions for any other contingent payments, options or commitments. As a result of the acquisition,
iEmployees results of operations since October 5, 2007 have been included
in the Companys Consolidated Statement of Operations for the year ended July 31,
2008.

The business combination was accounted for under SFAS
Statement No. 141, Business Combinations. The application of purchase
accounting under Statement No. 141 requires the total purchase price to be
allocated to the fair value of assets acquired and liabilities assumed based on
their fair values at the acquisition date, with amounts exceeding fair value
being recorded as goodwill. The
following table summarizes the estimated preliminary and adjusted fair values
of the iEmployee assets acquired and liabilities assumed:

The
following summary presents the unaudited pro forma consolidated financial
information for the years ended July 31, 2008 and 2007, as if the
iEmployee acquisition had occurred as of August 1, 2006. The pro forma information does not purport to
be indicative of the actual results which would have occurred had the
acquisition been completed as of August 1, 2006, nor is it necessarily
indicative of the results of operations which may occur in the future.

For the Year

For the Year

Ended July 31, 2008

Ended July 31, 2007

As Reported

Pro Forma

As Reported

Pro Forma

Revenues

$

10,182

$

11,195

$

40,407

$

45,797

Net (loss) income

(12,708

)

(12,563

)

12,248

13,002

Net (loss) income per common share:

Basic

$

(0.42

)

$

(0.41

)

$

0.48

$

0.42

Diluted

(0.42

)

(0.41

)

0.47

0.42

Weighted average shares outstanding:

Basic

30,026

30,947

25,515

30,610

Diluted

30,026

30,947

26,049

31,144

4.GOODWILL
IMPAIRMENT

In accordance with SFAS Statement No. 142, Goodwill and Other Intangible Assets, Forgent reviews its goodwill for possible
impairment on an annual basis, or whenever specific events warrant. Due to its continued depressed stock price
and the current market conditions during the fourth fiscal quarter of 2008,
Forgent determined that the decline in its market capitalization may not be
temporary. Due to the decline in its
market capitalization, the Company was
required to perform an impairment analysis on its goodwill. To evaluate its goodwill for
impairment, Forgent used a two-step process.
Under the first step, Forgent determined that the estimated fair value
of the Company, as represented by its market capitalization, was less than its
net book value, thus requiring the completion of the second step of the
impairment analysis. As part of the second step, Forgent allocated the
estimated fair value of the Company, as represented by its market
capitalization, to its assets and liabilities, excluding goodwill, based upon
the individual estimated fair values. As
a result of its allocation process, the Company determined that goodwill had an
implied fair value of $0. An impairment loss is measured as the excess of the
book value of the goodwill over the implied fair value of the goodwill. As a result of the impairment analysis, Forgent
recorded a non-cash $7,391 goodwill impairment related to its acquisition of
iEmployee to its Consolidated Statement of Operations

for
the year ended July 31, 2008. This
impairment had no impact to the Companys tangible net book value or liquidity.

5.INTANGIBLE ASSETS

Forgent accounts for its acquisitions in accordance with SFAS
Statement No. 141, Business Combinations. The Company records the amount
exceeding the fair value of net
assets acquired at the date of acquisition as goodwill. The Company records
intangible assets apart from goodwill if the assets have contractual or other
legal rights or if the assets can be separated and sold, transferred, licensed,
rented or exchanged. Forgents goodwill
and intangible assets relate to its acquisition of iSarla Inc. and the
iEmployee operations.

In accordance with SFAS Statement No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets, Forgent review
and evaluates its long-lived assets, including intangible assets with finite
lives, for impairment whenever events or changes in circumstances indicate that
their net book value may not be recoverable.
Based on Forgents impairment test, no impairment was identified for the
Companys intangible assets for the year ended July 31, 2008. The Companys goodwill was fully impaired as
of July 31, 2008 (see Note 4).

As
of July 31, 2008, the gross carrying amount and accumulated amortization
of the Companys intangible assets are as follows:

Amortization

Accumulated

Intangible Asset

Period (in Years)

Gross

Amortization

Net

Developed Technology

5

$

915

$

(150

)

$

765

Customer Relationships

8

2,470

(253

)

2,217

Ceridian Contract

8

1,545

(158

)

1,387

Trade Names

5

288

(47

)

241

Covenant not-to-compete

4

150

(31

)

119

$

5,368

$

(639

)

$

4,729

Forgent did not have any intangible assets as of July 31,
2007. Amortization expense is recorded
using the straight-line method over the estimated economic useful lives of the
intangible assets, as noted above.
Amortization expense for the fiscal year ended July 31, 2008 was
$639. The
following table summarizes the estimated amortization expense relating to the
Companys intangible assets for the next five fiscal years and thereafter:

Fiscal Years

2009

$

780

2010

780

2011

780

2012

749

2013

545

Thereafter

1,094

$

4,729

6.LITIGATION
SETTLEMENTS

Forgent was in legal proceedings with multiple companies in the United
States District Court for the Eastern District of Texas, Tyler Division (the  746
Litigation), regarding the infringement of its 746 patent. In April and June 2007, Forgent
entered into settlement and license agreements with ten of the defendants, who
were dismissed from the 746 Litigation with prejudice. Under these agreements, Forgent granted the
defendants a patent license and the defendants paid the Company a total of $28,000.
Additionally, all parties agreed to release all claims against each other. The $28,000 was recorded as
intellectual property licensing revenue on the Consolidated Statement of
Operations for the year ended July 31, 2007.

In
May 2007, a jury found the four asserted claims of the 746 patent
to be invalid. This finding was in favor of the two remaining defendants in
the 746 Litigation. On August 9,
2007, the Court ordered Forgent to remit $90 to the defendants for
reimbursement of certain litigation costs.
This payment was made on August 23, 2007. As a result, Forgent considered the 746
Litigation to be concluded. The Company
did not actively pursue additional 746 license agreements during fiscal year
2008 and does not anticipate any additional licensing revenues from its 746
patent.

Forgent was also in legal
proceedings with multiple companies in the United States District Court for the
Northern District of California regarding the infringement of its 672 patent
(the  672 Litigation). In October 2006,
Forgent signed a Patent License and Settlement Agreement with the remaining
defendants in the 672 Litigation. Under this agreement, Forgent granted the
defendants a patent license and the defendants paid Forgent $8,000. Additionally, all parties agreed to release
all claims against each other. The
$8,000 was recorded as intellectual property licensing revenue on the
Consolidated Statement of Operations for the year ended July 31,
2007. As a result, Forgent considered the 672
Litigation to be concluded. The 672
patent expired in October 2006 in the United States. The Company did not actively pursue
additional 672 license agreements during fiscal year 2008 and does not anticipate any additional licensing
revenues from its 672 patent.

7.SALE
OF ASSETS

In November 2006, Forgent sold certain
patents and applications associated with videoconferencing and related fields
and technology, together with related goodwill, rights and documentation, to
Tandberg Telecom AS (Tandberg) for $3,150. Upon closing, Forgent
received $2,900 of the purchase price, all of which was recorded as a gain on
sale of assets. The purchase price
remaining balance of $250 is held in escrow for two years for indemnity claims.

8.INTELLECTUAL PROPERTY LEGAL CONTRACTS

In April 2006,
Forgent engaged Hagans Burdine Montgomery Rustay & Winchester (Hagans)
and Bracewell & Giuliani, L.L.P. (Bracewell) to provide legal
services related to the 746 Litigation.
Hagans and Bracewell replaced Godwin Gruber, LLP (Godwin) and Hagans
served as the lead counsel on the 746 Litigation. In December 2006, Forgent signed an
amendment to the Legal Services Fee Agreement with Hagans and Bracewell. This amendment increased the contingency fee
payable to Hagans and Bracewell from 30% (15% to each law firm) of all license
and litigation proceeds related to the 746 patent and other patents, net of
expenses, to 37.5% (20% to Hagans and 17.5% to Bracewell). Additionally, effective September 1,
2006, all related expenses, including consultant fees, travel expenses,
document production expenses, etc. were allocated as follows: 25% to Forgent,
50% to Hagans, and 25% to Bracewell, until such total expenses reached $2,500. Prior
to the amendment, Forgent was liable for all related expenses. During the third fiscal quarter of 2007, the
$2,500 threshold was exceeded and Forgent was liable for all subsequent
expenses. In addition to Hagans and
Bracewell, Forgent was also liable for contingency fees to The Roth Law Firm,
P.C. for 10% of the 746 patent and other patents litigation proceeds, net of
expenses, and to Jenkens & Gilchrist, P.C. (Jenkens) for 10% of all
gross license and litigation proceeds related to the 746 patent.

After Forgent terminated Jenkens, the Company
entered into a Resolution Agreement with Jenkens in December 2004. Under the Resolution Agreement, the Company
believes Jenkens is entitled to $1,400 for all related fees and expenses
related to the settlements from the 746 Litigation. Jenkens interprets the Resolution Agreement
on broader terms and believes it is entitled to $3,400. In July 2007, Jenkens filed a complaint
against the Company in the District Court of Dallas County, Texas, alleging a
breach of contract, and is seeking a declaratory judgment. Forgent disputes Jenkens claims and is
seeking relief through the court system. Management currently cannot predict
how long it may take to resolve the Jenkens lawsuit. However, once the Jenkens litigation is finalized,
the related contingency fees and expenses may be adjusted in a future period
and could have a material impact to the Companys consolidated financial
statements.

Legal expenses for contingency fees and legal counsels time incurred
are recorded as part of cost of sales from Forgents intellectual property
licensing business on the Consolidated Statements of Operations. Cost of sales for the intellectual property
licensing business for the year ended July 31, 2007 was $18,270. Forgent did not incur any cost of sales from
its intellectual property licensing segment during the year ended July 31,
2008. Other legal expenses incurred
related to the Patent Licensing Program are recorded as part of operating
expenses on the

Consolidated Statements of Operations.
Other related legal expenses for the year ended July 31, 2008 and
2007 were $266 and $3,192, respectively.

9.LOAN IMPAIRMENT

During
fiscal year 2002, Forgent sold the operations and certain assets, including the
VTEL name, of its videoconferencing equipment business (Products business),
which designed, manufactured and sold multi-media visual communication
products. The sale was made to VTEL
Products Corporation (VTEL), a privately held company created by the former
Vice-President of Manufacturing of the Products business and two other senior
management members of the Products business. As a result of the sale, the
Company received a 90-day subordinated promissory note, bearing interest at an
annual rate of five percent, for $967, and a 5-year subordinated promissory
note, bearing interest at an annual rate of five percent, for $5,000. VTEL did
not remit payment on its first subordinated promissory note as stipulated in
the sales agreement. As a result of this default and due to the uncertainty in
collecting the two outstanding notes from VTEL, the Company fully reserved the
outstanding balances of both notes from VTEL as of July 31, 2002. During the years ended July 31, 2008 and
2007, Forgent did not record any interest income related to the VTEL notes.

On
July 24, 2007, Forgent agreed to accept 267 shares of VTEL Common Stock in
consideration necessary to retire in full the outstanding obligations and
indebtedness from VTEL. Therefore, as of
July 31, 2007, the $5,780 remaining balance for the two outstanding notes,
and the related reserves, were written off.
The new shares, which were received, effective September 19, 2007,
are in addition to the 1,045 shares that Forgent originally received during the
sale in fiscal year 2002. Forgents
total 1,312 shares of VTEL Common Stock represent 19.9% of VTELs fully diluted
equity. Due to the financial uncertainty
of VTELs future, the Company has valued the VTEL shares at $0.

10.PROPERTY AND EQUIPMENT

Property and equipment and related depreciable
useful lives are composed of the following: